Insider Payments over 1 year before filing

[mhmonica88]

Hi! Had a question about insider payments for Chapter 7. We filed our Chapter 7 on August 16th. We borrowed 25,000 from my Aunt in 2016 to purchase, move, and set up a mobile home on our land. We sold our first home May 2018, and with the proceeds, paid my Aunt back the 25,000 we owed to her, so our mobile home is owned free and clear. We had our 341 meeting last Thursday and all went well. There's not enough equity for our mobile home for the trustee to sell, so he wasn't interested in that. He DID want to "further review" the 25,000 transfer we made to my Aunt in May 2018. I know this can be considered a preferential payment to an insider, but it was well over a year before we filed. We sent all our docs to lawyer (copy of original deposited check my Aunt gave us, bill of sale where we turned around and bought the mobile home, and copy of check where we paid her back in May 2018). Could anyone give me peace of mind that the trustee is not going to go after the money we paid back to her? This wasn't a fraudulent transaction. I know the "look back" period is one year.

[justbroke]

The Trustee is reviewing it, likely to make sure that it was more than one year before filing. I'm sure you listed it on your Statement of Financial Affairs (SoFA) and that's why the Trustee wants to review the timing. So long as it wasn't done fraudulently to hinder, delay or defraud a creditor, then the one (1) year seasoning of that payment should be good enough to keep it out of the hands of the bankruptcy estate.

Short answer... Trustee is doing her/her due diligence and making sure all your dates are accurate. I wouldn't be surprised if they asked for bank statements for May 2018 - August 2019, in order to see exactly when that payment was made.

[mhmonica88]

thanks for the reply! we actually listed that we sold our home in 2018, but didn't mention where the proceeds went to. we didn't know we were supposed to, and the lawyer didn't ask us to provide that information. So, the trustee and the lawyer both were caught off guard in the 341 meeting when I relayed that information. I think this is why the trustee wanted to look into it more. Definitely wasn't a fraudulent transfer, as we have proof of original check that was given to us, and where we paid it back. it wasn't just a check we wrote to his aunt with nothing in return.

[justbroke]

That would certainly catch the Trustee and even your attorney off-guard. It happens. And, it doesn't happen because you forgot to disclose it, it happens because there are just so many questions... that things fall to the side. They'll just check the dates and make sure it is outside the 1 year.

The code doesn't care if you received nothing in return. It only cares whether there was an unsecured creditor and that you preferred the unsecured creditor by paying them, and not other creditors. Specifically, it was created as a way to prevent people that know they will be filing for bankruptcy, to pay back all their relatives and friends before filing. I don't see that you did anything wrong at all. It's just a due diligence exercise at this point.

[mhmonica88]

Thank you for the advice! This makes me feel so much better. And you're right....the attorney doesn't seem to think it's an issue either, but I am overly analytical by nature.

[mhmonica88]

Just wanted to give an update....I received the Trustee's Report of No Distribution on 10/7/19! Now just waiting for our discharge at the end of November. Fingers crossed for smooth sailing from here on out!