Question about Insider Payments

[kathy4530050]

Can somebody please clarify something for me? I think I read somewhere that an insider payment is a gift or repayment of a loan in excess of $600 within a year of filing (not sure this is right). However, what if someone were to give an insider 2 or more separate 'gifts' of $500 during the year before filing? Is this legal?

Thanks--

[JRScott]

You'd add the two together and it would then be a 1000 dollars......

[lrprn]

Can somebody please clarify something for me? I think I read somewhere that an insider payment is a gift or repayment of a loan in excess of $600 within a year of filing (not sure this is right).

It's not right.

According to the Bankruptcy Law Network: "You shouldn’t try to repay insiders like your parents, siblings, close friends or others before you file for bankruptcy because the bankruptcy court has the power to “avoid” or reverse the payment. In other words, if you repay your friends or relatives, they may have to give back the money you paid them. This is called a preference, because the payments were made to creditors you may have preferred over another. In this context, the bankruptcy code calls your parents, siblings, other relatives and close friends “insiders”.

Payments made to any creditors within ninety days of filing bankruptcy may be preferences, and if so, will be subject to being avoided by the bankruptcy trustee. Not all pre-petition payments are preferences. House and car payments, ongoing rent or utility payments, and regular payments on some types of loans in the ordinary course of business are normally outside of preference laws.

While there is a ninety day look-back for payments made to non-insiders, there is a one year look-back period for payments made to “insiders”. This means that payments made to “insiders” within one year prior to filing can be avoided by the bankruptcy trustee." http://www.************************/...le-bankruptcy/

So there's no $ limit on insider payments within one year of filing bankrupcy - any amount is suspect (although in reality the sum has to be big enough to make it worth the trustee's effort to go after it).

Preferential payments are a payment or payments to non-insider, unsecured creditors that total over $600 during the 90 days before filing.

[kathy4530050]

Thank you. I really appreciate this info. But now I'm confused. I tried to remember where I read something about insider payments and I found it. It as in The Tactical Bankruptcy Manual that I found on a sticky on this site. Here is what this manual says (p.38):

"A single gift to a daughter of $5,000 is an avoidable preferential transfer. However, 10 gifts of $500, done in separate transactions to 10 children, are completely legal."

And, the author is calling these gifts preferential transfers, not insider payments.

[StartingOver08]

Kathy, I think the difference is between what is practical and what is possible. Yes, the Trustee can avoid the 10 separate transactions to 10 children from a legal perspective, but from a practical perspective, it would be extremely expensive. However, if you have repaid 10 separate $500 transactions to the same family member over the course of one year, then the cost to avoid is substantially reduced and it is worthwhile for the Trustee to persue. Each Trustee weights the cost and effort to obtain the funds against the result.

[kathy4530050]

OK . . . thanks . . . I get it. My real concern is money that I have given my two college sons over the past year. Their father takes care of most of their expenses, but I have pitched in on a number of occasions, mostly when they were home for visits, I would send them back with a few hundred dollars cash to help with their living expenses. I am sure that I have given each of my sons more than $1,000 over the past year. But then I did NOT see this bankruptcy coming. This was always cash, but in the event I have to explain where my money went, this might come up. I have also helped my daughter out. She just graduated from college last year, has her first real job (and making peanuts) and didn't have money for the security deposit on her apartment or car repairs when they came up. I always give my kids cash, not checks, but am really hoping this won't be an issue. . .

[JRScott]

In your bk petition there is a place to list gifts to insiders. You would list the amounts there (approximate amounts). Don't let the trustee find it on their own, just be up front with it. When asked about it just say it wen to their college for your sons, and to help your daughter car repairs/apartment.

In most jurisdiction I don't think either of these would raise a flag. Discuss this gift with your lawyer and make sure he's aware up front. Lawyer's don't like surprises....

[kathy4530050]

Great. Thank you. I'll do that.