Issue link: https://mbozikis.ufcontent.com/i/1422521
118 3. Strong-Arm Powers of the Trustee Section 544 of the Bankruptcy Code grants the trustee the rights that certain creditors (whether in existence or not) would have under applicable State law to attack prior unperfected or unrecorded transfers. This power is referred to as the "strong arm" power and gives the trustee the status of a hypothetical lien creditor. 11 U.S.C. § 544(a). The trustee's strong arm power acts to cut off unperfected security interests, secret liens and undisclosed prepetition claims against the debtor's property as of the commencement of the case. Thus, the trustee holds the rights and powers to avoid transfers that could have been exercised by (i) a hypothetical creditor that obtained a judicial lien as of the commencement of the case; (ii) a hypothetical creditor that had an execution returned unsatisfied as of the commencement of the case; or (iii) a hypothetical bona fide purchaser of real property who had perfected its interest as of the commencement of the case. 11 U.S.C. § 544(a). Section 544(b) also permits a trustee to avoid any transfer or obligation that is avoidable under applicable law by an actual creditor holding an allowable unsecured claim. Such a creditor must actually exist but need not have reduced its claim to judgment or have executed upon it. However, the trustee acquires only those rights actually possessed by the creditor. Thus, if the creditor is estopped from attacking a transfer or the statute of limitations has run before the filing, the trustee is also barred. Section 544(b) can be employed to utilize State fraudulent transfer laws, which are generally based on the Uniform Fraudulent Conveyance Act (UFCA) and the Uniform Fraudulent Transfer Act (UFTA). Although not exactly the same as the Bankruptcy Code fraudulent transfer provision, the UFCA and UFTA are similar to the Bankruptcy Code in most respects. However, State fraudulent transfer law is often preferred to the Bankruptcy Code's fraudulent transfer provision because the States generally provide much longer statutes of limitations. For instance, although Section 548 permits a trustee to avoid transfers