What Is Section 544?
Section 544 of the U.S. Bankruptcy Code gives the bankruptcy trustee "strong-arm" powers — the ability to set aside (avoid) certain transfers and liens that were not properly perfected before the bankruptcy was filed. It lets the trustee act as a hypothetical perfect creditor or buyer to undo interests that would lose to such a party under state law.
What the Strong-Arm Power Does
- Treats the trustee as a hypothetical lien creditor as of the filing date
- Allows the trustee to avoid unperfected security interests and certain unrecorded transfers
- Can also reach transfers voidable by an actual unsecured creditor under state law
Why It Matters
Section 544 is why perfection matters so much in secured lending. A lender that failed to record its mortgage or file its UCC financing statement before the borrower's bankruptcy can have its lien avoided under § 544 — dropping it from a secured creditor to an unsecured one, often recovering little. For Florida lenders, the lesson is to perfect promptly: record mortgages and file financing statements right away, because the strong-arm power rewards the diligent and penalizes delay. This is a federal matter under Title 11.
Related Terms
- Section 541 — Defines the estate the trustee administers
- Perfection of Security Interest — What § 544 punishes the lack of
- Title 11 U.S.C. — The Bankruptcy Code
Barnes Walker
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Federal Law Reference
11 U.S.C. § 544
Gives the bankruptcy trustee the powers of a hypothetical lien creditor and certain actual creditors, allowing avoidance of unperfected liens and certain transfers.
Reviewed by the attorneys at Barnes Walker, Goethe, Shea & Robinson, PLLC