Paying Relatives

[chad9162]

Okay, question for a friend.....

My buddy is filing Chapter 13 because his attorney told him he could still pay his mother in law. Basically, I buddy took a loan from a his mother in law and have been paying her back for several years. He pays her about $720 a month. I understand that during a Chap 7, a trustee could go after her for preferential payments but how would he still be able to pay her during a Chap 13.

My understanding is that unsecured creditors (which she is) would get what's left over. His attorney thinks he can get a Chap 13 at 30 cents on the dollar. I mean how can he pay his mother in law the full amount during Chap 13? Wouldn't the other creditors object? Wouldn't it be preferential payments?

Thanks

[klandsb]

Chad9162... Just my thoughts. Paying her is just not going to fly in a Chapter 13..
The trustee is out to get the unsecured creditors as much as possible which is determined by your DMI & schedules I & J.... She would be considered an insider pmt and "she may have to give the trustee the money that he has paid her"... If it were me I wouldnt want to be the one to tell her that...
I was paying my ex-husband $100 a mth for a car we bought our daughter..When researching it I discovered he may have to turn over the money I have paid him to the trustee... There is no way in he** I want him involved in my financial affairs. I just dropped it ... He hasnt gotten any money for 4 mths. Eventually I intend to pay him the rest but not right now....
Let other more experienced forum member give there 2 cents but that is the way I understand it to be.

[klandsb]

Chad I found this on the web :

This is what I found:

If you have given a family member money, even for a perfectly legitimate reason like paying back money you've actually borrowed from them, the person that the trustee will sue to get the money or property back will be the family member you thought you were helping by paying them your money! All you would be accomplishing is getting your family member sued by a bankruptcy trustee, potentially. This would make things worse for you and your family, not better.

[Flamingo]

All debts must be listed in a BK filing, including family members. What would happen here is that the MIL would become an unsecured creditor in the BK and receive that percentage. Many family members and/or friends do not want to be part of a family member's or friends' BK so your "buddy" will need to check with his MIL about the situatoin and advise his attorney accordingly. We owed friends for our filing fee at the time of our filing and our attorney advised us to check with them if they wanted to be included in the filing...they did not and advised us they would wait until after our Plan is over for the money or if we could pay them something now and then that would be fine. We discussed with our attorney who noted the situation in our filing. We paid them back with funds from our first tax refund, plus interest.

[Peasey]

I have the same situation at the moment and I got a different answer from our atty. I have been paying a family friend ~$175/mo and will continue to do so during Ch 13. The atty said that he will be included in the Ch 13, but I could note that account as 'direct pay' and still maintain the original payment agreement. I've only got a few months left, so it's a better option in our case.

[chad9162]

I have the same situation at the moment and I got a different answer from our atty. I have been paying a family friend ~$175/mo and will continue to do so during Ch 13. The atty said that he will be included in the Ch 13, but I could note that account as 'direct pay' and still maintain the original payment agreement. I've only got a few months left, so it's a better option in our case.

Direct Pay?? Interesting??? But wouldn't that be preferential payments? Aren't you "favoring" or giving preference to your friend? Unless you're paying ALL other creditors IN FULL I don't see how you can pay one creditor 100% and others at a lower percent unless approved by the courts.

Wouldn't the trustee or other creditors object? I have read that paying a friend or relative is something the trustee looks at with scrutiny. Possibly a fraudulent transfer or a means to hide assets?

[Peasey]

Direct Pay?? Interesting??? But wouldn't that be preferential payments? Aren't you "favoring" or giving preference to your friend? Unless you're paying ALL other creditors IN FULL I don't see how you can pay one creditor 100% and others at a lower percent unless approved by the courts.

Wouldn't the trustee or other creditors object? I have read that paying a friend or relative is something the trustee looks at with scrutiny. Possibly a fraudulent transfer or a means to hide assets?

Yes, we'll most likely have 100% payback case. We make more than the means test allows for discounts. We go to sign everything on the 1st, so I will know for sure what the deal is. The problem on our end is that the person we borrowed the money from will not accept being paid after the 41st month in our plan.

[chad9162]

Yes, we'll most likely have 100% payback case. We make more than the means test allows for discounts. We go to sign everything on the 1st, so I will know for sure what the deal is. The problem on our end is that the person we borrowed the money from will not accept being paid after the 41st month in our plan.

Well I can see it working out since ALL creditors will get PAID IN FULL. My questions is how can you do it when one creditor is getting 30 cents on the dollar but still pay your relative 100%?

[forgotten]

Well I can see it working out since ALL creditors will get PAID IN FULL. My questions is how can you do it when one creditor is getting 30 cents on the dollar but still pay your relative 100%?

Easy answer, you don't. If the attorney thinks he can he doesn't have much experience. The trustee would object to the plan so fast your head would spin.

[chad9162]

Easy answer, you don't. If the attorney thinks he can he doesn't have much experience. The trustee would object to the plan so fast your head would spin.

Thats what I said!?