Although bankruptcy litigation is the same as any other litigation in some respects, there are special rules relating to litigating in bankruptcy court and causes of action that do not exist in other courts.
One such cause of action is called an “avoidance action”. Under the bankruptcy laws, a debtor or a trustee can seek the return of payments creditors received in the ninety days, one year, two years or even six years prior to the filing of the bankruptcy petition.
When faced with these types of lawsuits, many clients initially believe they are invalid. We hear questions like “How could this be? I was owed this money and they finally paid me”. The premise behind the avoidance action laws is that parties who received payments within the last 90 days before the bankruptcy filing are considered automatically suspicious.
The presumption is that the creditor did something to put pressure on the debtor to force this payment. As a result, the law sees this as unfair to other creditors and allows the debtor to claw it back with the idea that the creditor will have a claim in the bankruptcy just like every other unsecured creditor.
For a debtor to claw back payments within a year or two years of the bankruptcy filing, the creditor would have had to have committed some sort of fraud or taken some payment with knowledge of fraud. For a debtor to recover payments made within six years of the bankruptcy filing, under NY State law, the debtor must show fraud from both the payer and payee in order to succeed.
Successful navigation of these litigations requires vast knowledge of the bankruptcy code, the sound hand of experience and the familiarity of both the local and federal bankruptcy rules. DuffyAmedeo attorneys have litigated countless avoidance actions as well as other causes of action in the bankruptcy court. Although being in bankruptcy court can be an advantage for the debtor, having counsel that is familiar with the procedures and the laws surrounding these unique bankruptcy causes of action may be enough to level the playing field.