Dianne K. Rudman, What Power Does and Should the Chapter 13 Debtor Have to Avoid Liens and Transfers?, 37 Gonz. L. Rev. 513 (2002).
Chapter 5 of the United States Bankruptcy Act grants powers to a trustee(or a debtor in possession in a reorganization). The powers are to avoid certain transfers of property, or preferential payments made or involuntarily suffered by the bankrupt (or debtor) during specified times preceding and following the filing of a bankruptcy petition. Chapter 5 applies to a Chapter 7, 11, 12 and13 bankruptcy under the Act. Relief ranges from straight bankruptcies under Chapter 7, to reorganization plans used primarily by business debtors under Chapter 11, to wage earner plans under Chapter 13.
Chapter 5 of the Bankruptcy Act grants the trustee power to avoid offending transfers and preferences. However, an anomaly appears in the Chapter 13 context in that there appears to be little, if any, incentive for the trustee to exercise the power. Distinct from straight bankruptcies and reorganizations under Chapter 11, the Chapter 13 trustee has no interest in maximizing the debtor’s estate; it benefits neither the creditors’ recovery, northe trustee’s compensation to do so. This is the necessary implication of reliance on the debtor’s future earnings as the source of repayment of old debts. Further influencing the Chapter 13 trustee is the fact that trustee’s compensation is not based, directly or indirectly, on the size of the estate. As a result, Chapter 13 trustees may be somewhat apathetic. This trustee apathy has prompted some courts to permit the Chapter 13 debtor, as the party really representative of the estate and motivated to maximize it, to maintain avoidance proceedings. . . . Read More