Relative Payments

[mybk]

Have a question, about 18 months ago I borrowed money from relative to pay down one of our credit cards. Fast forward to current date where we are now having to file chapter 13. We have been making monthly payments on the money owed to friend and now under 13 would have to pay again into the trustee pool based on those payments even though creditor was sent the money?!!?

Is this something that can be argued for exclusion? We have a statement from the creditor as evidence of the pay down 18 months ago.

[justbroke]

You may have issues with this. Payments to family and friends (or what's termed as insiders), may be taken back through an action of the Trustee. I hope you didn't pay too much money to your friends/family over your other unsecured creditors.

The kicker is that the Trustee goes after your family/friend, not you for the money. May debtors will "protect" the family/friend by offering to pay the amount back themselves, rather than have the Trustee go after the family/friend. In any event, making payments to one unsecured creditor over another unsecured creditor, can cause some issues with your case.

Your relative is an unsecured creditor. They will be treated no differently than any other unsecured creditor. It doesn't matter that they loaned you money to pay down a credit account. The fact is, they are an unsecured creditor.

I hope that helps.

[mybk]

During this time, we paid them only $180 per month which was in par with any other creditor (most those we owed the same, were paid $200+ per month).

My issue is that the money we borrowed from the family member went towards one of the creditors in a lump sum payment. This to me seems a bit unbalanced, as we will now be paying again times all the monthly payments to the friend.

Was just hoping by demonstrating that the borrowed money went as a lump sum payment to the creditor that the trustee may be able to eliminate their payments from such a collection attempt.

[mybk]

You may have issues with this. Payments to family and friends (or what's termed as insiders), may be taken back through an action of the Trustee. I hope you didn't pay too much money to your friends/family over your other unsecured creditors.

The kicker is that the Trustee goes after your family/friend, not you for the money. May debtors will "protect" the family/friend by offering to pay the amount back themselves, rather than have the Trustee go after the family/friend. In any event, making payments to one unsecured creditor over another unsecured creditor, can cause some issues with your case.

Your relative is an unsecured creditor. They will be treated no differently than any other unsecured creditor. It doesn't matter that they loaned you money to pay down a credit account. The fact is, they are an unsecured creditor.

I hope that helps.

This part does make sense, except that if I was paying my other unsecured creditors during that time at the same payment rate then why do I have to punish one unsecured creditor over another? Meaning I paid the family member $180 per month for the last 12 months, I paid a credit card with the same balance $240 per month for the last 12 months. Why do I then have to put into the Trustee $180x12 for the payment to the family?

[justbroke]

This part does make sense, except that if I was paying my other unsecured creditors during that time at the same payment rate then why do I have to punish one unsecured creditor over another? Meaning I paid the family member $180 per month for the last 12 months, I paid a credit card with the same balance $240 per month for the last 12 months. Why do I then have to put into the Trustee $180x12 for the payment to the family?

If you were paying your unsecured creditors at the same rate, then you are fine! If you used the loan to pay off another credit card, you'll probably be okay. How long was it... just 12 months or longer? The more time since you made that large payment to the unsecured creditor, the better! Usually one year is good enough time to distance yourself from that payment.

I don't believe you need to put $180x12 to the Trustee. If there is no insider preference than you and your relative have nothing to worry about. If the Trustee goes after the $180x12 as a preference (insider preference), then they will probably go after your relative for the money. However, since you were paying all your other (unsecured) creditors at the same time, and probably at their minimum payment (not leaving any of them out)... you are probably clear from that standpoint.

A preference only occurs when you pay one unsecured creditor more than the others would have received if you had filed Chapter 7. I don't think you have an issue at all.

Besides, in a Chapter 13, there are usually not that many preference issues anyhow. That's because more than likely, you will be paying all unsecured creditors some dividend throughout the life of your plan. You may even be paying all your creditors back 100%, depending on your disposable monthly income and how long you need to be in the Plan.

I really see no issue now that you're explained some more. Your payment to unsecured creditors will is usually based on your disposable monthly income (DMI). Your DMI is going to affect your plan payments the most.

[mybk]

Thanks, that helps clear it up a bit and I will bring that up with our lawyer. Just wanted some views on it prior to meeting with him and talking about it. There was only a single payment we made to the family member at a time when we did not pay all our other creditors which I would be acceptable to put in the 'pot' so to speak.

Our DMI leaves nothing at this point for any creditors. Given we are a family of 4 on a single income with a car payment and mortgage, there is not much of anything left. After working up the means test for budgets, there is no money left for any other payments. We would be able to do 7, except we have a second mortgage that needs to be addressed or we can not stay in this house (we refuse to go through a BK and leave our home at 50% our take home pay, just sets us up for failure again).