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St. Mary's Law Journal

Abstract

It is common lore among bankruptcy trustees and lawyers that a bankruptcy trustee has an unlimited time period under the Bankruptcy Code (the Code) to file objections to claims. Neither Section 502(a) of the Code nor Federal Rule of Bankruptcy Procedure 3007 contains time limitations within which an objection to a claim must be filed. Yet, creative creditor attorneys have fashioned arguments that the two-year limitations period placed on avoidance actions by Section 546(a) of the Code applies to claim objection proceedings brought under Section 502(d). Because courts have held the limitations period of Section 546(a) applies to claim objection proceedings, creditors who have received preferential or fraudulent transfers are potentially allowed to take disproportionately large shares of bankruptcy estate, to the detriment of other creditors. By enacting the Bankruptcy Code, Congress established a statutory scheme to foster equal distribution of the assets of financially distressed entities among creditors. Section 502(d) promoted this policy of equal distribution by preventing creditors which have received avoidable transfers from receiving distributions from a bankruptcy estate, unless the recipient has previously returned the transfer to the trustee. The case of In re Marketing Associates of America, Inc. runs afoul of this congressionally created statutory scheme. By imposing the limitations provision of Section 546(a) on claims objections brought under Section 502(d), the Marketing Associates decision enhances the inequitable distribution of estate assets and forces trustees to take actions which may not be in the best interests of creditors. Therefore, courts should disregard the reasoning of Marketing Associates and should not apply the limitations deadline of Section 546(a) to claim objections brought under Section 502(d).

Publisher

St. Mary's University School of Law

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