In re: Equipment Acquisition Resources, Inc.

Federal 7th Circuit Court
Civil Court
Case Number: 
No. 13-1480
Decision Date: 
February 4, 2014
Federal District: 
N.D. Ill., E. Div.
Reversed and remanded
Bankruptcy Ct. erred in finding that debtor in possession in instant Chapter 11 bankruptcy proceeding could bring Illinois fraudulent transfer action under section 544(b)(1) of Bankruptcy Code against IRS to recoup debtor’s federal tax payment. While section 544(b)(1) allows Trustee to step in shoes of actual creditor, who could have avoided transfer outside of bankruptcy using state law action, federal govt.’s sovereign immunity prevents creditors from suing IRS using state law. Moreover, while section 106(a)(1) of Bankruptcy Code abrogates govt.’s sovereign immunity with respect to certain subsections of section 544, section 106(a)(1) does not displace actual-creditor requirement in section 544(b)(1). Thus, because actual creditor could not bring Illinois fraudulent-transfer claim under section 544(b)(1) against IRS, instant debtor in possession could not bring instant action against IRS.