Making a loan before listing assets in chapter 13 filing

[clickman]

Let me use two hypothetical names to try and keep this complex question as simple as possible.

Sue has hired an attorney to file Chapter 13 for her. The paperwork has NOT been filed yet as of this date. In the meantime, she has stopped making all credit card payments. That has left her with a fair amount of cash. She fully understands that these sums will have to be turned over to the Trustee for payment to her creditors.

Tom is a relative of Sue and has problems of his own. He is about to lose his home by foreclosure if he doesn't come up with a few thousand dollars immediately.

Sue would like to loan Tom some of the money from the cash reserve she has accumulated by not making payments on her credit card debt before her formal filing. Tom has the ability to pay the loan back over a period of time.

Let me be absolutely clear - this is NOT a scheme to defraud the court on Sue and Tom's part. The facts as stated are 100% true. Of course Sue understands that the transaction will have to be reported to the Trustee. Keep these facts in mind; Sue would be able to show where the money went and to provide a loan agreement signed by Tom. Tom will be able to provide proof the money in fact was spent to prevent the foreclosure on his home.

As long as this is a legitimate loan (and not a scheme of some sort) and the proper paperwork (a loan agreement) has been entered into, is this a workable plan? Tom understands that the Trustee will probably "take over" the note and repayment will have to be made to him, not to Sue.

Again, let me emphasize this is NOT a way to get around the Trustee taking those funds. The situation is EXACTLY as described. Any problems and/or suggestions on how to proceed?

Thanks!

[HHM]

Let me stop you in paragraph one. CASH in bank accounts is NOT subject to be taken by the trustee in CHAPTER 13. (now, you will need to reconcile the value of the non-exempt portion of that cash, but it will not be taken). Chapter 13 is not about taking assets, it is about your ability to pay something back to your creditors with your disposable income.

So, no need to take the risk and loan the money, the money is safe.

Before Sue liquidates her cash reserves, she should get further along in the chapter 13 process. Those cash reserves are what is going to allow sue to have a successful chapter 13 and account for expenses that are not directly budgeted in a chapter 13 plan.

As such, I think, form a practical point of view, not worth doing. At least not yet until Sue is in a more stable situation, has her chapter 13 confirmed.