I am not a lawyer, I am a judgment referral expert (Judgment Broker). Every court has their own local rules. This article is my opinion about general bankruptcy (BK) courts and lien lookback times in federal bankruptcy courts. In my opinion, some judges seem to not care about every law. Sometimes, it's what the judge wearing the robe says, not what the laws say, that counts.
In theory, when one secures a UCC or another type of lien, on the debtor's assets long before the debtor files for bankruptcy protection, one expects they will be, and remain, a secured creditor. In general, secured creditors are much more likely to get some money (if any debtor assets are available) than unsecured creditors are likely to get.
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One of the more confusing parts of the bankruptcy laws are the "look back" laws. Look back laws let the court take back money you got from the debtor, within a certain period of time between when the debtor paid you, and when they later filed for bankruptcy protection. In some cases, you will be required to return the money to the bankruptcy court.
When one has a "cured" lien (perfected, recorded, and/or with any statutory time limits required for the lien to become secured have passed) one expects they would be exempt from bankruptcy court look back concerns.
The only way look back assets are recovered, is by the trustee of the bankruptcy estate, if they file an Adversarial Proceeding (AP) lawsuit against any creditor (secured, or otherwise) or party, which could mean you. Trustees do this routinely and without hesitation.
There are several different (usually statutory Federal laws) look back periods that trustees can choose, when reviewing payments made to creditors prior to the filing of a debtor's BK petition.
1) The 90-day look back is for general creditors that receive funds on open book accounts, and accounts payable (e.g. vendors and suppliers for raw goods or utilities). This usually does not include payments for payroll and taxes. Those who work on contract, or commissions (e.g. real estate agents) are not exempt, because their payments are viewed as being for services provided, and not as employee wage payments.
2) There is a one-year look back for any payments made to those considered insiders (officers, directors, majority shareholders, board of directors, family members, etc.)
3) There is generally a two-year limit from the date of the BK filing in which the trustee has to file any AP lookback filings against a party. If they fail to file within that time, they are generally barred from bringing suit later in the BK proceedings, for the recovery of any assets they allege are properly part of the BK estate.
4) The trustee can also choose State laws for a 4-year look back if they want to. For example, if a real estate brokerage files for BK, and had agents that have worked there for more than five years. The entirety of their paid commissions from the date of the BK, and spanning back four years can be recaptured from the agents through this process. If they were employees receiving wages or salaries, they would be immune.
This may seem unfair and confusing, however a goal of bankruptcy is "equitable distribution". No one creditor is allowed to have an advantage over another creditor when being paid. The goal is that all creditors should be treated equally within their class (secured versus unsecured).
Sometimes, it seems almost as if one primary objective of the BK process is to benefit the attorneys, trustees, and their various advisers, experts, and accountants, to charge huge amounts of money from the estate for as long as possible. By law, they are first in line, ahead of all creditors, which guarantees they get paid first (and in whole), while the creditors and shareholders receive what (if anything) is left.
The objective of the bankruptcy "system" sometimes seems to be to maximize profits into the system's pockets, instead of the creditors and victims pockets. They can do this several ways:
1) It can seem as if they take as long as possible, with as many people on the payroll as possible, at the highest rates of compensation as possible.
2) Turning secured creditors into unsecured creditors.
3) Forcing look back settlements with those that they sue in APs.
4) Sometimes disallowing legitimate claims through legal "bullying, intimidation and trickery", to benefit certain other creditors, shareholders and victims.
In the average bankruptcy case, any leftover scraps of money are distributed as follows: Employee wages up to about $10K, secured debt and bond holders, secured creditors (e.g., banks that hold a deed of trust on a property), unsecured creditors, and finally to any shareholders.
Filing a UCC, or another kind of lien might make you a secured creditor in bankruptcy court, but that will not get you paid any time soon, and sometimes not at all.
If you have received funds from a debtor, even if you already have a secured lien, and are past the 90-day look back, you should be prepared for a possible AP suit to be filed against you.
It might take some time for the trustee and their accountants to go over the debtor's records. If they discover any payments to you, they may file an Adversarial Proceeding, using one of the possible look back periods, to try to make you repatriate the funds.
If a debtor pays you, and then files for bankruptcy protection, understand there is a chance you might have to give the money back. Consult a bankruptcy attorney if you have any questions about this or any legal matter.
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