Liens And Bankruptcy

I am not an attorney, I am a judgment matching specialist (Judgment Broker). Every court has their own local rules. This article is my opinion about general bankruptcy (BK) courts and lien lookback times in federal bankruptcy courts. In my opinion, some judges do not care about every law. Sometimes, it's what the judge wearing the robe says, not what the laws say, that counts.

In theory, if one secures a UCC or another type of lien, on the debtor's assets long before the debtor files for bankruptcy protection, one expects they will be, and remain, a secured creditor. Usually, secured creditors are much more likely to get some money (if any debtor assets are available) than unsecured creditors are likely to get.

Some of the more confusing parts of the bankruptcy laws are the "look back" laws. Look back laws let the court take back funds you got from the debtor, within a certain period of time between when the debtor paid you, and when they later filed for bankruptcy protection. In some cases, you will be required to return the money to the bankruptcy court.

When one has a "cured" lien (perfected, recorded, and/or with any statutory time limits required for the lien to become secured have passed) one expects they will be exempt from bankruptcy court look back concerns.

The only method that look back assets are recovered, is by the trustee of the bankruptcy estate, if they file an Adversarial Proceeding (AP) lawsuit against any creditor (secured, or otherwise) or party, which can mean you. Trustees do this often and without zcompunction.

There are several different (usually statutory Federal laws) look back periods that trustees can choose, when reviewing payments made to creditors prior to the filing of a debtor's bankruptcy petition.

1) The 90-day look back is for general creditors that receive money on open book accounts, and accounts payable (e.g. vendors and suppliers for raw goods or utilities). This usually does not include payments for payroll and taxes. Those who are paid on contract, or commissions (e.g. real estate agents) are not exempt, because their payments are viewed as being for services provided, and not as employee wage payments.

2) There is a one-year look back for any payments made to those considered insiders (officers, directors, majority shareholders, board of directors, family members, etc.)

3) There is generally a two-year limit from the date of the BK filing in which the trustee has to file any Adversarial Proceeding lookback filings against a party. If they fail to file within that time, they are generally not allowed to bring suit later in the BK proceedings, for the recovery of any assets they allege are properly part of the BK estate.

4) The trustee can also use State laws for a 4-year look back if they so choose. For example, if a real estate brokerage files for BK, and had agents that have worked there for more than five years. The entirety of their paid commissions from the date of the BK, and spanning back 4 years can be recaptured from the agents through this process. If they were employees receiving wages or salaries, they would be immune.

This may seem unfair and confusing, however a goal of bankruptcy is "equitable distribution". No one creditor is allowed to have an advantage over another creditor when being paid. The goal is that all creditors will be treated equally within their class (secured versus unsecured).

Sometimes, it seems almost as if one primary objective of the bankruptcy process is to benefit the attorneys, trustees, and their various advisers, experts, and accountants, to charge huge amounts of money from the estate for as long as possible. By law, they are first in line, ahead of all creditors, which guarantees they get paid first (and in whole), while the creditors and shareholders receive what (if anything) is left.

The objective of the bankruptcy "system" sometimes seems to be to maximize profits for the BK system pockets, instead of the creditors and victims pockets. They may do this several ways:

1) It can seem as if they take as long as possible, with as many people on the payroll as possible, at the highest rates of compensation as possible.

2) Turning secured creditors into unsecured creditors.

3) Forcing look back settlements with those that they pursue in Adversarial Proceedings.

4) Sometimes disallowing legitimate claims through legal "bullying, intimidation and trickery", to benefit certain other creditors, shareholders and victims.

In an average bankruptcy case, any leftover scraps of money are distributed as follows: Employee wages up to about $10K, secured debt and bond holders, secured creditors (e.g., banks that hold a deed of trust on a property), unsecured creditors, and finally to any shareholders.

Filing a UCC, or another type of lien might make you a secured creditor in bankruptcy court, but that will not get you paid any time soon, and sometimes not at all.

If you have received funds from a debtor, even if you have already a secured lien, and are past the ninety day look back, you should be prepared for a potential AP suit to be filed against you.

It might take some time for the trustee and their accountants to go over the debtor's records. If they discover the payments to you, they may file an Adversarial Proceeding, using one of the potential look back periods, to try to make you pay back the funds.

If a debtor pays you, and then files for bankruptcy protection, understand there is a chance you might have to give the money back. Consult a bankruptcy lawyer if you have any questions about this or any legal matter.