In bankruptcy, the disposition can be avoided except against which buyer?

• A. It cannot be avoided
• B. It can be avoided only against a buyer in bad faith
• C. It can be avoided except against a buyer in good faith and without notice of the petition
• D. It can be avoided only by a court order

Answer: (C)

The key idea is how a bankruptcy trustee can unwind deals that might drain the debtor’s estate, while recognizing protection for someone who purchases in good faith. A disposition of the debtor’s property can be set aside by the trustee to recover assets for the estate, but there’s a crucial exception: a buyer who purchases for value in good faith and without notice of the bankruptcy petition is protected from having that disposition undone against them. In other words, the trustee can avoid the transfer except where the buyer acted honestly, paid value, and did not know the debtor was Bankrupt. That combination of good faith, value, and lack of notice is what stops the avoidance from applying to that buyer, making that statement the correct one. The other ideas misstate the scope of avoidance or the conditions for protection—the essence is the protection for a bona fide purchaser without notice.