getting ready to file CH13 but

[5yrplan]

I have 11K inheritance coming (who knows when) and a 1.5K 2016 tax refund coming. I was advised to wait for the inheritance to arrive before filing. I was also advised to stop paying creditors back in September of 2016. Do you agree with my lawyers advice? The inheritance is hung up in the state revenue dept. of IA.
estate tax return was filed in July of 2016. Let me know thanks.

[leonel9]

It seems like you shouldn't just wait, but have a plan for the funds. It appears that Iowa's exemption list gives you $1,000 as a wildcard exemption. Not much, considering you already have $11,000 that is not exempt.

If you file now, the pending payout should be listed as an asset and included in the bankruptcy estate.

If you receive it first, then it would still be included unless the funds are spent. The question I would ask your attorney is: What is reasonable to spend it on. Likely the answer will be food, clothing home or auto repairs.

[5yrplan]

So if I spend all of the tax return on health or dental care I should be fine?

[leonel9]

Generally, the trustees (and by extension, creditors) are looking to ensure that you are not spending money fraudulently (with the purpose of avoiding paying them). Ensuring you have proper health insurance / medically necessary procedures, life insurance, home repairs, food, etc. seems reasonable to me. Your attorney should be able to tell you what the trustees in your region will find objectionable.

[5yrplan]

Also my brother is my largest creditor unfortunately. He's demanding my inheritance and I have no problem giving it to him minus a reasonable amount (1-2K) for an emergency fund. Maybe when the 11K inheritance arrives I cash it give my brother his 9-10K and put the rest in an emergency fund then file Chapter 13. Might that fly? My attorney said Yes once then No later on. Thanks

[leonel9]

A transfer of funds ($10k) to your brother within a year of filing is by definition an insider transfer. While this may not impact you, if the trustee gets wind of it, she or he will almost certainly sue your brother to recover those funds. He is not entitled to your inheritance, only the portion that represents his share of the unsecured debt you owe, after secured creditors and priority debts are accounted for.

I have no experience with estate accounts, but I would think the ideal scenario would be if you never received the inheritance, or only received $1-2k and used those funds to pay your attorney. I don't know whose decision it is to divide out the funds, but it sounds like it's already been done. :-/

If you have equity in property you own, perhaps your brother can secure the loan by placing a lien on it. For sure talk to an attorney about any attempts at paying your brother.

[despritfreya]

If you have equity in property you own, perhaps your brother can secure the loan by placing a lien on it.

Absolutely, positively "No" - unless you plan on waiting one year. Turning an insider from an unsecured to a secured creditor is no different than paying the insider with those inheritance funds. It is preferential treatment.

Des.

[leonel9]

Absolutely, positively "No" - unless you plan on waiting one year. Turning an insider from an unsecured to a secured creditor is no different than paying the insider with those inheritance funds. It is preferential treatment.

Des.

Scratch that -- thanks Des!

[5yrplan]

So I can tell him we can try it but he might have to give it back? I want to do this right, I don't want to risk being denied my filing. If I give him the money then wait a year won't I risk ending up in garnishment misery? I haven't paid any creditor except my 1st and 2nd mortgages that I'm keeping since September 2016. I thought about paying Discover (15K) a little when this inheritance arrives to buy more time to wait a year, would that work? Thanks

[5yrplan]

And why would I pay my attorney from cash? Isn't the attorney fees paid by the plan? Thanks

[leonel9]

I don't think anyone is suggesting you transfer the funds to him. If you do, you should know the implications of paying an insider. You could certainly pay a large sum, and save some to make regular payments to your creditors, then reevaluate later. Of course the downside with this is you don't know what will happen in the future -- you may end up having an increase in income, resulting in increased plan payments (assuming you will still need to file bankruptcy).

You could also consider credit counseling or debt settlement (though I don't know how much you owe and what the likelihood of obtaining a settlement is) if you want to avoid bankruptcy.

Using the funds to pay your attorney and related fees may or may not make sense, especially in a Chapter 13 case. But it is something that wouldn't be considered preferential. And your only real option to prevent the funds from being clawed back is either spend the funds on reasonable items (e.g. home repairs and medical expenses) or offer it as payment to your creditors.

[5yrplan]

I'm going to take all the money when it arrives to my attorney and let him figure out what's best for me then. Thanks
My brother does want this money and he does think I should give it to him and delay filing until enough time has passed. I like this option if I knew I
could get away with it.

[justbroke]

So I can tell him we can try it but he might have to give it back? I want to do this right, I don't want to risk being denied my filing.

We're saying... do not do this unless you have spoken with an attorney as part of some asset protection plan. Please re-read what Des wrote. If the Trustee finds that you did this intentionally with the intent for a preference to be made... knowing that it could circumvent the creditors (the Trustee is the representative of the creditors), then it "could" make it worse.

Just don't do anything that is considered an insider transfer or a fraudulent transfer.

[5yrplan]

Sorry for my added confusion but Des wrote "-unless you plan on waiting a year" which I would do if I can keep from getting sued or garnished. Debt consolidation couldn't help me I went to http://www.consumercredit-dm.com/ first. I have asked my attorney several times and he keeps giving me different answers. Ugh, my brother is so demanding and fears he'll get screwed. I did make my brother a 401k beneficiary for his amount.

[justbroke]

Nothing would prevent you from paying him AFTER your discharge. He can also file a claim in the bankruptcy and if there is any distribution, he'll get a pro-rata share.