personal loan from Father 3 months before considering chapter 7

[Mailman12]

I went through a divorce last year, I had to borrow $7,500 from my Father to pay the lawyer, I refinanced my house shortly after the divorce, I got money out of the refi, I paid my Father back the money. My attorney told me yesterday that I shouldn't have paid my Father back the money and if I were to file chapter 7, the trustee will go after him for the money. I am considering styill filing chapter 7, and if he takes the hit I will take money out of my 401 to pay him back. I have an option of going with chapter 13, I really don't want to live under the watchful eye of anyone for 5 yrs, I have $40k in credit card debt. Has anyone dealt with this issue during their filing?

[despritfreya]

If you are willing to protect dad from the Trustee's preference action you should be fine. You do not mention what state you are in. Here in AZ trustees will first ask the debtor if the debtor is willing to pay. Not a big deal if you have access to funds.

Des.

[Mailman12]

I'm in Florida, I do not have funds to pay, my lawyer says that this will probably force me to file chapter 13

[sophieanne]

Even if you go to a 13, the money could still be taken back from your dad. Isn't that correct experts such as Des?

[despritfreya]

1. Mailman, you initially stated you could get the $$ from your 401k so I assume you do "have funds to pay".

2. Sophie, the 13 would protect dad as OP would agree to pay the preference amount to the unsecured creditors. Here in AZ, the 13 trustee requires the signing of a waiver of the time to bring a preference action just in case the case converts to a 7. But, other than that, the 13 trustee will leave the issue alone.

Des.

[LadyInTheRed]

Mailman12, just so you know, nobody keeps a watchful eye on you during a Chap 13. Some trustees require you to send copies of your tax returns and you may have to report increases in your income, but other than that, once the plan is confirmed, the debtor makes their monthly plan payment and goes about his/her life. This isn't to say that you shouldn't avoid a Chap 13 if you can. But, it isn't as bad as you seem to imagine.

[justbroke]

Let me add to what despritfreya wrote. In Florida, the Chapter 13 Trustees want nothing to do with preferences and, really, doing the work that is involved in a Chapter 7 liquidation. The Chapter 13 Trustee will, however, figure out the Chapter 7 liquidation value of your estate and then make sure you pay at least that amount to your unsecured creditors. So, if there was a theoretical preference of say $10,000 to your dad, the Chapter 13 Trustee would want at least that amount paid to the unsecured creditors, plus any other "minimum" distributions required in the Chapter 13.

You say that you have money in your (protected) 401K. I highly don't recommend liquidating a 401K, but if you are youngish (not near retirement age) and are willing to borrow against your future, then you may be able to negotiate with the Chapter 7 Trustee to pay something "less" than the $7,500. It's all in your attorney's negotiating skill and the willingness of the Chapter 7 Trustee to deal for something "less" than $7,500.

(You negotiate because the Trustee would incur may frees attempting to claw back the $$$ from your father. So you calculate those fees and aggravation and offer the Trustee some amount less. Please don't ask me what the first offer should be. Also, please don't ask me whether you should borrow against a 401K. That's a complicated amount of math and affect on your future.)

Just my $0.02