Available at: https://www.ablj.org/the-strong-arm-power-on-steroids-expanding-non-avoidance-trustee-claims-under-%C2%A7-544a1-vol-100-issue-1-html/
Introduction:
The so-called strong-arm power–§ 544(a) of the Bankruptcy Code has traditionally been used by a trustee in bankruptcy to avoid security interests in personal property or real property interests that are unperfected or unrecorded at the moment the bankruptcy case is commenced. Called one of the “avoiding powers” of the trustee, § 544(a) states that the “trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by” three different entities. Among those entities is a creditor that extends credit and obtains a judicial lien with respect to that credit at the time of the commencement of the case on all property on which a contract creditor could have obtained a judicial lien. Section 544(a) makes clear that no such entity need exist; the trustee assumes the position of a hypothetical creditor that meets the applicable requirements. By contrast, § 544(b)(1) allows the trustee to avoid transfers or obligations that are voidable under applicable law by an actual creditor holding an allowable claim. That provision does not give the trustee more generally the “rights and powers” of those actual creditors.
In this article [the author] suggest[s] that, although § 544(a)(1) confers on the trustee the “rights and powers” of a lien creditor, it was never intended to allow the trustee to exercise rights and powers that are generally given under state law to all creditors rather than just lien creditors. Giving the trustee the exclusive right to bring causes of action that could be asserted by creditors as a group is inconsistent with the history, language, and policy underlying the avoiding powers.
Consumer Commentary:
Professor Laura Bartell’s article is a careful but significant pushback against the expanding use of the trustee’s “strong-arm powers” under 11 U.S.C. §544(a)(1). Traditionally, bankruptcy lawyers think of §544(a) as the mechanism that allows a trustee to avoid unperfected liens, secret interests, or improperly recorded mortgages by stepping into the shoes of a hypothetical judicial lien creditor as of the petition date.
Bartell argues that courts and trustees have increasingly attempted to stretch those powers far beyond their historical purpose. Rather than merely avoiding unperfected transfers, some trustees have attempted to use §544(a)(1) to assert broad creditor causes of action that belong generally to unsecured creditors as a class. The article contends that this “strong-arm power on steroids” is inconsistent with the statutory text, the legislative history, and the historical understanding of the trustee’s avoiding powers.
The article traces the development of the strong-arm clause from the Bankruptcy Act of 1898 through the Chandler Act and ultimately into the Bankruptcy Code of 1978. Bartell emphasizes that the historical function of these provisions was narrow: to give the trustee the status of a hypothetical lien creditor so that unperfected or secret liens could be defeated under state law.
Importantly, Bartell rejects two extreme interpretations of §544(a). On one hand, she disagrees with courts that treat §544(a) solely as an avoidance provision with no independent “rights and powers” component. On the other hand, she also rejects the expansive interpretation that would allow trustees to assert essentially any claim that unsecured creditors could have brought outside bankruptcy. Instead, she proposes a middle ground: the trustee should only be able to assert rights specifically tied to the status of a judicial lien creditor, execution creditor, or bona fide purchaser—not generalized unsecured creditor claims.
That distinction may sound technical, but for consumer bankruptcy practice—especially Chapter 13 cases—it can be important.
One of the most interesting implications of Bartell’s narrower reading of §544(a)(1) is how it intersects with the “best interests of creditors” or hypothetical liquidation test under 11 U.S.C. §1325(a)(4). To the extent that a Chapter 13 trustee argues unsecured creditors must receive larger distributions because a hypothetical Chapter 7 trustee could pursue additional litigation claims, marshaling actions, alter ego theories, veil piercing, lender liability claims, or other expansive estate recoveries through the trustee’s strong-arm powers.
Bartell’s article provides substantial support for pushing back against those assumptions.
If §544(a)(1) only grants the trustee those rights specifically belonging to a judicial lien creditor—as opposed to all conceivable unsecured creditor causes of action—then the hypothetical Chapter 7 liquidation analysis becomes materially narrower. A Chapter 13 debtor can argue that many speculative “trustee recovery” theories should not be included in the liquidation calculation because a Chapter 7 trustee would not actually possess those causes of action under a proper reading of §544(a).
That matters because hypothetical liquidation analyses often become wildly inflated through conjectural trustee litigation recoveries. Trustees or creditors may assert that unsecured creditors would receive more in a Chapter 7 because the trustee could theoretically sue third parties, pursue insider recoveries, compel marshaling, or assert derivative creditor claims. But if Bartell is correct—and her statutory history analysis is persuasive—many of those claims are not actually part of the trustee’s §544(a)(1) arsenal.
The article’s discussion of marshaling illustrates the point particularly well. Bartell notes that some courts have allowed trustees to invoke marshaling by claiming the status of a hypothetical judicial lien creditor under §544(a)(1), while other courts reject that approach as inconsistent with the historical purpose of marshaling doctrine and the Bankruptcy Code’s distribution structure. She argues that §544(a) should not be used to expand trustee powers beyond those specifically tied to lien-creditor status.
For Chapter 13 debtors, this becomes a practical confirmation issue. When a trustee asserts that unsecured creditors must receive additional plan distributions because a hypothetical Chapter 7 trustee could pursue aggressive litigation theories, debtors may now have stronger authority to argue that such recoveries are too speculative, legally unavailable, or beyond the proper scope of §544(a)(1).
This is particularly relevant in cases involving:
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alleged insider claims;
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veil piercing or alter ego theories;
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lender liability or tort claims belonging individually to creditors;
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speculative marshaling recoveries;
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equitable subordination theories;
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or claims against third parties that belong to creditors individually rather than the estate itself.
Bartell’s historical analysis also dovetails with broader recent Supreme Court skepticism toward expansive bankruptcy powers untethered from statutory text. The article repeatedly emphasizes that Congress deliberately omitted broader creditor-representative provisions from the final enactment of the Bankruptcy Code, even though earlier drafts would have expressly authorized trustees to assert generalized creditor claims. That legislative choice matters.
Consumer bankruptcy practitioners should pay close attention to this article because it provides a sophisticated doctrinal framework for resisting exaggerated hypothetical liquidation analyses in Chapter 13 confirmation disputes. Too often, hypothetical Chapter 7 recoveries are treated as boundless. Bartell reminds us that the trustee’s strong-arm powers were never intended to make Chapter 7 trustees omnipotent litigation representatives for every conceivable creditor grievance.
Sometimes the strongest defense to an inflated liquidation analysis is simply insisting that §544(a) means what it actually says.
To read a copy of the transcript, please see:
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