Limitations on Trustee’s Strong Arm Powers

Section 544(a) of the Bankruptcy Code - commonly referred to as the "strong arm clause" - gives a bankruptcy trustee special powers to defeat the status of certain creditors. It provides that "[t]he 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 a debtor" that could have been "avoided," or invalidated, by certain kinds of hypothetical judicial lienors, holders of unsatisfied executions or bona fide purchasers of real property. When complemented by the trustee's powers to avoid preferential or fraudulent transfers made (or obligations incurred) by a debtor prior to filing for bankruptcy, the strong arm powers give the trustee a formidable array of tools to generate the greatest possible pool of assets for administration in a debtor's bankruptcy estate.