Transfer debt to and then from parents...

[adamvonwillis]

Hello... I am recently divorced and my share of the debt totalled approx 14k. I had it all in high interest creditcards and my parents were kind enough to transfer it to their home equity line of credit. Well I no longer am making enough money to pay them each month and I was wondering if I would still be able to file bankruptcy if I transferred the money back to my credit cards. Thanks.

[HHM]

That scenario is "ok", but problematic in some respects.

If you were to do that, you would need to wait AT LEAST 6 months from the time you transferred the debt onto your credit cards to avoid an objection to discharge of that debt. If the creditor's attorney got creative, and put 2 and 2 together and recognized that you paid a family member (insider), that would probably give them a stronger case for fraud.

If you were to do that, you would need to wait many months from the date you made the charges before filing BK.

[ssdsco]

Wouldn't the $14k have to reported on the Statement of Fianancail Affairs if done within 2 years of filing ? And if that’s the case the trustee could go after the parents for the $14k ?

[HHM]

Wouldn't the $14k have to reported on the Statement of Fianancail Affairs if done within 2 years of filing ? And if that’s the case the trustee could go after the parents for the $14k ?

You make a good point...but I would hedge that point a little...
reason being, the debtor would not be using "assets" of the future BK estate (he is merely trading one debt for another) to pay this debt, thus, strictly speaking, its not a "payment" to an insider. The proposed transaction is analogous to a balance transfer.

Basically, to give yourself the best shot of making this work, you would have to make the transfer...wait 6-9 months before filing BK AND make the minimum payments during that time.

Apparently, there is some sort of agreement between you and your parents to pay back this debt. To fully cover your bases, you should probably have that agreement in writing...that way it doesn't look like you are simply giving a cash "gift" to your family. Also, you want to track down the paper trail that shows that your parents gave you $xx.xx money, and that money was paid directly to your creditors.

In any event...this is one of those situations that is "borderline" in BK. Any half-way decent creditor's attorney could easily make this look very bad in front of a judge.

[adamvonwillis]

Thank you for the quick and intelligent replies.

I am really mad at myself for not forseeing this happening. I really should have just filed bankruptcy in the first place.

Anyways... My parents and I did write up an agreement saying how much they transferred from my accounts to theirs and how much I would be paying them a month. It was signed and dated as well but not notarized. I would be transferring the money back to the credit cards the debt was originally on.

Also... I am going through a foreclosure and I believe it is already on my credit report. I have heard that this is good from some people and bad from others.