Golden Creditors, Copper Rules: An Analysis of Avoidance Actions Under Section 544(b) of the Bankruptcy Code in Cases Where a Federal Creditor Holds a Claim

Section 544(b) of the Bankruptcy Code endows the trustee with the power to avoid fraudulent transfers that an unsecured creditor could have avoided under applicable law. Most states have adopted versions of the Uniform Fraudulent Conveyances Act (UFCA) or Uniform Fraudulent Transfers Act (UFTA) that impose four- or six-year statutes of limitations on private creditors seeking to unwind fraudulent transfers. Certain government creditors, however, have access to longer statutes of limitation than those available to their private counterparts. Federal creditors acting pursuant to the Federal Debt Collection Procedures Act (FDCPA) or Internal Revenue Code (IRC), for example, can avail themselves of six- or ten-year limitations periods. Courts have disagreed sharply about whether the FDCPA and IRC constitute applicable law under Section 544(b) such that a claim held by a government creditor under the fraudulent transfer provisions of those statutes could be derivatively asserted by a trustee. Particularly, some courts have argued that treating the FDCPA and/or IRC as applicable law under Section 544(b) would impermissibly modify the operation of the Bankruptcy Code, inappropriately delegate inherently sovereign powers to private parties, or produce undesirable policy outcomes. This note argues that all of these arguments are unavailing. The plain text of Section 544(b) suggests that the FDCPA and IRC constitute applicable law under the meaning of the statute; any undesirable policy results should be addressed by Congressional revision rather than by judicial intervention