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Seventh Circuit Holds That Bankruptcy Trustee's "Strong-Arm" Powers Not Strong Enough For The Irs, Paul T. Geske

Seventh Circuit Review

In 2014, the U.S. Court of Appeals for the Seventh Circuit confronted, for the first time, the issue of whether a bankruptcy trustee can claw back assets that a bankrupt debtor fraudulently transferred to the federal government. Generally, government entities are immune to suit due to sovereign immunity, but the Bankruptcy Code abrogates federal sovereign immunity as to a number of Code provisions. One such provision is Section 544(b), often referred to as the source of the bankruptcy trustee's "strong-arm" powers. The strong-arm powers allow trustees to avoid transfers that would be fraudulent and voidable under state law. However, these …