Preferential Payment-Please HELP!

[Goat]

Most have 4 years under the Uniform Fraudulent Transfer Act.

Would using credit cards to pay off student loans be considered a fraudulent transfer and require a 4 year wait?

[justbroke]

Would using credit cards to pay off student loans be considered a fraudulent transfer and require a 4 year wait?

I'm unsure if they'll use the word fraudulent, but it is probably a non-dischargeable transfer.

Here's why.

Anything that can't be discharged... can't be discharged even when there is a constructive discharge. For example, say that you paid your property taxes with your credit card on 1/1/2009. You then file for Bankruptcy on 5/1/2009 (clearly outside any preferences or presumed non-dischargeable purchases). The problem is, that property taxes (as well as most taxes) are non-dischargeable! Therefore, the creditor could bring a complaint that the charge is non-dischargeable, which would mean that they could still collect the debt from you.

I don't see this any different than paying student debt with a credit card, and then attempting to discharge the credit card. However, not all credit card companies are going to be quick on this, and some may just ignore the fact that you are attempting to constructively discharge non-dischargeable debt.

At least that's my opinion.

[anuta]

This is a really useful discussion.

I read here pretty frequently--but don't post much.

We will be filing for BK in Aug 2009. I did make payments on a relatives cc's up until July of 2008--will I be having problems? I am self employed, we have high debt, we will pass the means test. I have not used my cc's in over 3 years, my husband only used one of his last July for some gas. There is nothing new on the cards, except lots and lots of interest. We stopped paying our cards in July of 08, as per our lawyer's advice. We had planned to file earlier--but a great many things stopped us and our lawyer now advises August.

[justbroke]

We will be filing for BK in Aug 2009. I did make payments on a relatives cc's up until July of 2008--will I be having problems? I am self employed, we have high debt, we will pass the means test. I have not used my cc's in over 3 years, my husband only used one of his last July for some gas. There is nothing new on the cards, except lots and lots of interest. We stopped paying our cards in July of 08, as per our lawyer's advice. We had planned to file earlier--but a great many things stopped us and our lawyer now advises August.

I don't think you have any problem if 1 year has passed. Were you paying on their card, for debt you created on that card (and you're an authorized user)? Or, were you just paying the relative's bills for them.

[fltoo]

I would use the word fraud.

Aside from that though, thinking this through, I would not say it is an avoidable transfer since there was no money in the BK estate paid to the student loan for the trustee to take back. He can't very likely take cash that was taken from the credit card. I think the cc company would have something to say about taking their money to pay other creditors.

I agree that it is just like paying your taxes with a cash advance. The only thing that can really happen is the cc company objects and the cash advance has to be paid back.(Money paid to taxes is a cash advance, not a regular charge.)

Would the trustee get involved in this fraudulent payment since it does not afford him any benefit? I don't know. Maybe someone else knows if the trustee or judge would get involved at all.

[anuta]

I was paying on money they allowed me to use on their cc. I paid it directly from my checking account to their cc company. I was not an authorized user. The debt was made quite a while ago maybe in 2004 or 05, and then I paid on it until July of 08.

[fltoo]

I was paying on money they allowed me to use on their cc. I paid it directly from my checking account to their cc company. I was not an authorized user. The debt was made quite a while ago maybe in 2004 or 05, and then I paid on it until July of 08.

You paid your relative's card and your cards equally until July, so I don't see a problem with a preferential payment. Just in case, have a paper trail ready.

[anuta]

You paid your relative's card and your cards equally until July, so I don't see a problem with a preferential payment. Just in case, have a paper trail ready.

Ahh--the paper trail. Of course.

[justbroke]

I would not say it is an avoidable transfer since there was no money in the BK estate paid to the student loan for the trustee to take back.

I meant to write non-dischargeable. I don't think it's a fraudulent transfer either, as, you wrote as well, no property of the debtor was conveyed. Alas, I have no direct experience with fraudulent transfers.

[StartingOver08]

Startingover08-

BTW, could you let me know where I can find the paperwork (petition?) that everyone keeps talking about? I'm in Georgia, in case that matters...

You could try here for the forms:

http://www.uscourts.gov/bkforms/index.html

[fltoo]

I meant to write non-dischargeable. I don't think it's a fraudulent transfer either, as, you wrote as well, no property of the debtor was conveyed. Alas, I have no direct experience with fraudulent transfers.

Wish I didn't have any direct experience with fraudulent transfers.

But, all is well, hopefully a few more days until discharge.

[Goat]

Would the trustee get involved in this fraudulent payment since it does not afford him any benefit? I don't know. Maybe someone else knows if the trustee or judge would get involved at all.

Interesting point. Never occured to me that the trustee wouldn't profit from the transfer.

On the other hand the creditor could bring it up at the 341. Right?

What would be the likely outcome?

The amount is significant ($20k+)

[justbroke]

On the other hand the creditor could bring it up at the 341. Right?

The creditor would file an Adversary Proceeding (complaint) to determine non-dischargeability. I wouldn't particularly expect "them" (the creditor) to even attend the 341, as it would be a waste of time. The key will be, what if they don't file a non-dischargeability complaint by the bar date (which is usually 60 days after the first scheduled 341 Meeting). At least, if I was the creditor, I would still file a complaint.

Again... who knows... they may not say anything.

However... I think it goes beyond most other non-dischargeable items. For example, if you spent more than $700 (or whatever it is now) on cash advances less than 90-days before filing your petition (bankruptcy), the debt is presumed to be non-dischargeable. However, the creditor needs to take positive action to prevent the debt from being discharge. In that particular example, the creditor would need to file the complaint to determine non-dischargeability.

However, the non-dischargeable status of student debt... is not a "presumption" of non-dischargeability. They are just non-dischargeable. The only way to get them to be discharged, is for the debtor (you) to file a complaint to determine dischargeability.

In short... I don't think it really matters if the creditor files a complaint or not, because this (student debt) is not one which requires the creditor to take action to determine dischargeability.

Again, I have no student debt or related direct experience. However, I have been researching general dischargeability because I have some unlisted debt which is not on the schedules. (I do think they are dischargeable, because they did receive notice... although not scheduled 11 USC 523(3)(A).)

[Goat]

So in the student loan payment case I mentioned about what is the duration of time I would need to wait from the payoff date before it cannot be considered?

90 days?

1 year?

4 years?

[justbroke]

So in the student loan payment case I mentioned about what is the duration of time I would need to wait from the payoff date before it cannot be considered?

My read, and technically speaking... forever. The law is clear. Student loans are non-dischargeable (period). There are exceptions for those who can prove a hardship. That's about it.

So, to me, that means that it can go back... years and years and years.

Taxes, on the other hand, have a limitation built in. The rule on taxes is any tax not due within 240 days (without penalty) (or somesuch language). So taxes paid more than 240 days before, on a credit card, don't get that special treatment. But even that has exceptions... especially if the tax attached to property by a lien.

Again, that's my read from the plain language.