In In re Gaither, Case No. 18-01317, Adv. Pro. No. 18-80040; 2018 WL 6287971, the U.S. Bankruptcy Court for the District of South Carolina held that Bankruptcy Code Section 544(b) permitted a trustee to step into the shoes of the Internal Revenue Service and employ the Federal Debt Collection Procedures Act to seek to avoid a transfer of disclaimed settlement proceeds. In so ruling, the court joined a number of other bankruptcy courts in establishing a bankruptcy trustee’s ability to seek and recover debts that, according to the defendants in this case, were collectible exclusively by the IRS.

Background

Cole and Anita Gaither were named as the personal representatives of their son’s estate following an aviation accident that resulted in their son’s death. On Jan. 26, 2015, Mr. and Mrs. Gaither filed a complaint against various parties seeking damages arising from the accident and the resulting death. Ultimately, the parties to this litigation agreed upon a settlement of $1.3 million in satisfaction of the Gaithers’ claims, resulting in a net recovery of $830,183.67. The settlement was approved by the Charleston County Court of Common Pleas on May 6, 2015. On that same date, the Gaithers disclaimed their rights to the settlement payment. Accordingly, the settlement amount passed to the Gaithers’ three surviving children in equal shares.