Legal Definitions - avoiding power

Avoiding Power

Avoiding power is the ability to cancel or void certain transfers or obligations made by a debtor in bankruptcy. This includes fraudulent conveyances, preferences transferred to creditors, unperfected security interests in personal property, and unrecorded mortgages. It is a power held by a bankruptcy trustee or debtor in possession.

• If a debtor transfers property to a family member to avoid paying creditors, the bankruptcy trustee can use avoiding power to cancel that transfer and recover the property for the benefit of the creditors.
• If a debtor pays off a loan to a friend before filing for bankruptcy, the trustee can use avoiding power to recover that payment and distribute it equally among all creditors.

These examples illustrate how avoiding power can be used to prevent debtors from unfairly favoring certain creditors or transferring assets to avoid paying debts. It helps ensure that all creditors are treated fairly in the bankruptcy process.