WEIRD SITUATION need Help, TT trying to recover 14k from another party..

[mysticspirit25]

Ok, here is the deal, my MIL filed BK PRO SE in January 09, already discharged. Chase filed an AP for a $14,200 bt check written to her husbands business 6 months prior to the BK. Husband not included in BK. The check was written in good faith to help his business "survive" (used car dealership), no profit was realized. MIL made payments and was current on all cc's at time of BK filing. Just couldnt make payments anymore since business was slower at the dealership (she holds no ownership in dealership)

Chase filed an AP in the Bk, settled for $2400.00. Closed the BK and the AP.

End of story, right? WRONG.

Today the husband received a letter from the TT's lawfirm and the letter basically demanded the full $14,200 pursuant to 11 USC 547 and 548 saying it was either a preferential payment or a fraudulent transfer.

The money was spent on new inventory and bills in July 08, its gone. The dealership is still in business but still (according to taxes) realized a 100k loss last year.

How can the trustee try to recover the 14,200 when MIL settled the AP with chase, isnt that like paying the bill twice?????

Help would be appreciated.

[HHM]

1. It is a transfer to an insider.
2. It was a conversion of credit into cash (you mentioned it as a balance transfer...what exactly happened. Did she transfer the balance onto a business credit card, or was this a cash advance that was deposited into the business acount...although, big picture, it probably will not matter).
3. The cash...is an asset
4. The cash was tranfered out of the Debtor's estate.

The husband is screwed...sorry to say.

Unfortunately, this is what happens when people file pro se. Had she spent $2,400 on an attorney, none of this would have happened, now the bK will cost her much more.

[mysticspirit25]

1. It is a transfer to an insider.
2. It was a conversion of credit into cash (you mentioned it as a balance transfer...what exactly happened. Did she transfer the balance onto a business credit card, or was this a cash advance that was deposited into the business acount...although, big picture, it probably will not matter).
3. The cash...is an asset
4. The cash was tranfered out of the Debtor's estate.

The husband is screwed...sorry to say.

Unfortunately, this is what happens when people file pro se. Had she spent $2,400 on an attorney, none of this would have happened, now the bK will cost her much more.

I disagree, it was almost 7 months, she wrote the check as a cash advance to the dealership (AND MADE REGULAR ABOVE MIN PAYMENTS) to keep it afloat, electric, phone, new inventory curtailment payments, etc. She already settled with Chase and the husband has no intent to pay the TT, he has no assets either, as all cars on the lot are not owned by him, basically he is going to tell them to F*** off and sue, and if they do, he will file BK too. He has nothing to attach, she has been discharged and the Chase debt has been settled. She didnt have 2400.00 for a BK atty.

[mysticspirit25]

1. It is a transfer to an insider.
2. It was a conversion of credit into cash (you mentioned it as a balance transfer...what exactly happened. Did she transfer the balance onto a business credit card, or was this a cash advance that was deposited into the business acount...although, big picture, it probably will not matter).
3. The cash...is an asset
4. The cash was tranfered out of the Debtor's estate.

The husband is screwed...sorry to say.

Unfortunately, this is what happens when people file pro se. Had she spent $2,400 on an attorney, none of this would have happened, now the bK will cost her much more.

As far as #4 goes, the cash was NOT transferred out of the debtors estate, b/c she didnt file BK until 7 months later. there was "no estate" at the time, and she made payments, well above min, she didnt think she would need to file bk, it just sort of happened when her parents got ill, and she could not afford cc's anymore.

[keepmine]

The problem is, it was atransfer of cash to an insider within a year of filing.
While Chase did settle with your MIL, the trustee sees this as an opportunity to recapture $14K for the benefit of all the unsecured creditors.
This is an instant where having more patience and delay filing would have likely created a better outcome.

[mysticspirit25]

The problem is, it was atransfer of cash to an insider within a year of filing.
While Chase did settle with your MIL, the trustee sees this as an opportunity to recapture $14K for the benefit of all the unsecured creditors.
This is an instant where having more patience and delay filing would have likely created a better outcome.

Ok, so what is done is done, now, how to avoid the repayment? It seems unfair to pay twice. Offer to settle with the TT?

[lrprn]

I disagree...

Just wondering....since you already made up your mind what was "right" in this unfortunate situation, why post asking our thoughts about it?

And by the way, although you don't want to hear it, HHM is right about this situation. In situations of insider transfer, the trustee has the right to go back one year looking for preferences. Your in-laws have no legal leg to stand on. Your MIL borrowed the money from her cc to give to her husband and then tried to discharge most of what she borrowed. The trustee will very likely prevail here, so your FIL should start looking for the bk lawyer now.

Trust me, this situation is now so tangled due to the original faulty pro se filing by your MIL, a really good bk lawyer to file your FIL's bk is an absolute necessity.

[mysticspirit25]

Just wondering....since you already made up your mind what was "right" in this unfortunate situation, why post asking our thoughts about it?

And by the way, although you don't want to hear it, HHM is right about this situation. In situations of insider transfer, the trustee has the right to go back one year looking for preferences. Your in-laws have no legal leg to stand on. Your MIL borrowed the money from her cc to give to her husband and then tried to discharge most of what she borrowed. The trustee will very likely prevail here, so your FIL should start looking for the bk lawyer now.

Trust me, this situation is now so tangled due to the original faulty pro se filing by your MIL, a really good bk lawyer to file your FIL's bk is an absolute necessity.

They have no $$$ for a lawyer b/c they used the money to settle with Chase and close the AP. BTW, it's not the "creditor" who is pursuing the money, its the TT. What was faulty about the filing other than not waiting a year? I guess he needs to file BK to discharge his liability then.

[lrprn]

Ok, so what is done is done, now, how to avoid the repayment? It seems unfair to pay twice. Offer to settle with the TT?

Your MIL can offer it, but the trustee isn't going to accept less than the amount in question. If the trustee prevails (and chances are very good that he/she will), then the best she can hope for is a payment plan for the $14K spread out over time.

This is a very sad outcome - I feel sorry for your in-laws. However, this is the perfect example of why some financial situations do not lend themselves to a pro se filing. Ignorance of the bk law (in this case, that the trustee can go back one year looking for insider preferences) is unfortunately not a defense

[mysticspirit25]

Ok, understood, so what is going to happen to FIL if he tells TT basically to go pound sand, not paying? He will sue, then get default judgment, then what, FIL can then go bk. MIL's case is closed and discharged. They are not coming after her. Also, what was the point in settling with Chase??? They get money for the debt, and then the TT gets the full amount? I don't understand.

[keepmine]

The problem now is, the trustee may well insert himself in your FIL's bk claiming preference/fraudulent transfer.
This is not a DIY project any longer.

[mysticspirit25]

I understand, then FIL will just have a useless and uncollectable judgment until he can afford to file bk with an atty. he has no assets, so a judgment would be worthless. The house was in MIL's name, completely discharged, still living there making payments, but it is discharged.

[lrprn]

They have no $$$ for a lawyer b/c they used the money to settle with Chase and close the AP.

Your in-laws are now caught up in a legal tangle that is going to be difficult to easily resolve. If they just discharged all their other debt and still have no left-over cash every month to start making payments to a lawyer, then they are in more financial trouble than just this.

What was faulty about the filing other than not waiting a year?

Given what information you've shared so far, not waiting until a year had passed from the money transfer to her husband was definitely a major error.

I guess he needs to file BK to discharge his liability then.

Frankly, I don't know if a court-ordered preference repayment can be discharged if your FIL does file. Your in-laws need expert legal advice about that before filing another pro se case that won't work out as expected and could dig them in even deeper than they are now.

Please, please, please tell your in-laws to find a lawyer to represent them! This situation is far too complicated to continue trying to represent themselves. If they truly cannot afford a lawyer and they live near a major metropolitan area, then if they qualify Legal Aid is a better option than continuing to go it alone.

[HHM]

As far as #4 goes, the cash was NOT transferred out of the debtors estate, b/c she didnt file BK until 7 months later. there was "no estate" at the time, and she made payments, well above min, she didnt think she would need to file bk, it just sort of happened
when her parents got ill, and she could not afford cc's anymore.

You are not fully comprehending the extent of the BK estate. It does not simply consist of the assets and liabilities that exist "at the time of filng". The BK estate can recapture assets that were transfered prior to the filing of BK if certian conditions are met, e.g. insider transfers with in one year, fraudulent transfers of real estate within 10 years, etc.

I feel bad for the outcome, its unfortunate. But, this is a no brainer situation, it's not like there was any sort of if, ands or buts with this scenario; there is nothing "wierd" about it. There is no fraud requirement for an insider transfer (unlike with the Creditor objection), all that needs to happen is a transfer of money to an insider, within one year of filing BK. They probably would have been better off filing a joint BK (but if the car dealership is a seperate entity, there would still be problems). Also, if the trustee cannot recapture the transfer, your MIL's BK is at risk, the trustee may move to deny your MIL a discharge. (if he is successful in getting the discharge denied, that menas none of the debts included in your MIL's BK can ever be discharged). I don't think it will come to that because the transfer appears to be missing other factors related to fraud...and I disagree with the previous post, the trustee will settle the amount if the money is fast and forth coming, but the trustee will want the bulk of it.

[lrprn]

I understand, then FIL will just have a useless and uncollectable judgment until he can afford to file bk with an atty. he has no assets, so a judgment would be worthless. The house was in MIL's name, completely discharged, still living there making payments, but it is discharged.

As I said earlier, I'm not sure whether this preference payback can be discharged if your FIL files Ch 7.

From http://bankruptcy.lawyers.com/Debts-...ankruptcy.html, in a Chapter 7 case, the most common types of debts that can't be discharged are:
-Taxes and tax liens
-Student loans
-Alimony and child support (domestic support obligations)
-Debts obtained through fraud, false pretenses or false representation
-Debts you failed to schedule in time to allow creditors to file proofs of claim (unscheduled debts)
-Debts for fraud while you were acting in a fiduciary capacity, or for embezzlement or larceny
-Debts for willful and malicious injury
-Debts for fines or penalties to governmental units
-Debts for judgments in wrongful death or personal injury lawsuits resulting from motor vehicle, vessel or aircraft accidents while you were intoxicated
-Condominium or cooperative association fees or assessments

I highlighted debts for fines or penalties to governmental units. Is the bankruptcy court-ordered repayment of an insider preferential payment considered a debt to a governmental unit? Only an experienced bk attorney is going to be able to answer that question for your FIL with any certainty. Please tell him he absolutely must get that answer before filing a Ch 7 assuming this insider preference amount can be discharged only to find out that perhaps it can't be.