Plain-English summary
Court limits when bankruptcy trustees can use state law to undo debtor transfers
The Court decided whether a bankruptcy trustee can use state-law causes of action that are limited to particular creditors to avoid prebankruptcy transfers. The justices concluded the trustee cannot invoke state-law claims that are privately tailored to specific creditors.
Why this matters
The decision narrows the kinds of state-law claims bankruptcy trustees can borrow to recover assets for creditors. That reduces one avenue trustees have to undo transfers made before bankruptcy, potentially leaving more assets with transferees and changing how creditors and trustees evaluate recovery prospects in bankruptcy cases.
Who may feel it
- Bankruptcy trustees
- Unsecured creditors and creditors’ committees
- Debtors and parties who received prebankruptcy transfers (transferees)
- State courts and state-law claimants
- Bankruptcy practitioners and creditors’ attorneys
Key questions
- Does "applicable law" in 11 U.S.C. § 544(b)(1) include state-law avoidance claims that are available only to a specifically named or otherwise particular creditor ("privately tailored" claims)?