Financial Records

[squeeze]

After you have filed, what does the trustee look for in the investigation of financial records? What specific questions are asked?

[lrprn]

After you have filed, what does the trustee look for in the investigation of financial records? What specific questions are asked?

After filing Ch 7, your estate is set on filing day. Some trustees (not all) will ask at the 341 meeting if there has been a change in your financial situation since filing.

Otherwise, unless the trustee suspects fraud or hiding of assets or you receive an inheritance within 180 days of filing, your financial records won't typically be looked at again after the 341 is over.

[squeeze]

and when are your financial records are looked at after the 341 is over? and what is the purpose of this additional exploration?

[albacore44]

and when are your financial records are looked at after the 341 is over? and what is the purpose of this additional exploration?

Just be ready to have any/all documentation ready for any of your financial affairs should the TT request it. better to be prepared than sorry. I have been preparing/journaling everything for a year for my soon to be filed case. If i get a request for a document, i want to be able to just reach in a binder and pull it out.

As far a purpose, consider yourself naked in front of the TT. all financial affairs are open for examination

[squeeze]

what if there are some transactions that will be difficult to explain?

[music12]

well, how difficult to explain? we can't help unless you tell us why they are difficult to explain... if these transactions would lead the trustee to discover assets or preferential payments that you are trying to hide, then it's better not to try to hide them.

[backtoschool]

Trustees are trained to look for transfers of money, and preferential payments. If you have any large payments to friends, family members or even to some of your creditor, the trustee will find them. Those types of payments are low hanging fruit to a trustee, and he will go after the creditor to get the money back.

[squeeze]

Here is my specific concern in regards to my financial records. Over the previous two years I have been collecting rent checks each month from tenants who are living in a property that I do not own. I have been paying most of this rent to the owner, and keeping some of the money myself. The context of this is that years before I had loaned money to the owner to help him buy the property, and for various reasons we had worked out this repayment plan. In retrospect, it would have been much cleaner to have him just pay me back directly, instead of collecting rent and keeping some of it.

What can I say? At the time, the plan made sense. I spoke briefly with an attorney about this today, and he wasn't too concerned about this. He said we could classify it as other income and be done with it.

To my mind, it seems a bit shady. What can I do to clean this up? Should I create written agreements confirming the fact that I originally loaned the money, and that the rental income went to cover these debts? I'm really concerned about this. How can I minimisk risk here?

[DeadManCrawling]

I doubt there is much you can do with this to help your bk if you are needing to file soon. The problem is that money, if received in the 6 month lookback, will count as income. However, I doubt you will be able to claim the expense of paying your friend as a secured payment since you do not own the properties.

Worst case scenario would be the money counts as income, but you cannot deduct the expense. And the trustee may view these transactions as payments to an insider, and avoid them, returning the money to the bk estate. This would also result in increased DMI, which can be very difficult to dea with.

Perhaps explaining the situation honestly to the trustee will help. Also, tell them that these payments will or have stopped.

It could be an uphill battle, if this is within the 6 month window.

Good luck,

-dmc

[backtoschool]

Here is my specific concern in regards to my financial records. Over the previous two years I have been collecting rent checks each month from tenants who are living in a property that I do not own. I have been paying most of this rent to the owner, and keeping some of the money myself. The context of this is that years before I had loaned money to the owner to help him buy the property, and for various reasons we had worked out this repayment plan. In retrospect, it would have been much cleaner to have him just pay me back directly, instead of collecting rent and keeping some of it.

What can I say? At the time, the plan made sense. I spoke briefly with an attorney about this today, and he wasn't too concerned about this. He said we could classify it as other income and be done with it.

To my mind, it seems a bit shady. What can I do to clean this up? Should I create written agreements confirming the fact that I originally loaned the money, and that the rental income went to cover these debts? I'm really concerned about this. How can I minimisk risk here?

Here are some points to remember in regards to your scenario:

1. The amount you kept each month needs to be declared as income.

2. The trustee could potentially see each check as a transfer between you and your friend.

3. If you do not have a contract with the owner of the property showing that the rent is due to him/her from the tenants, then the trustee and/or the US trustee may try to state that the entire amount of rent is income, not just the portion you kept, but this could be resolved in a 2004 examination as long as you have records of each payment from the tenants and each payment to the property owner, and as long as the payments are consistent so that it is straightforward to determine why you were keeping a certain amount of the rent, etc.

4. Since the tenants were paying rent to you and not the property owner, the trustee may look back for some transfer of that property. Did you ever own the property in question?

[squeeze]

I'm no longer collecting these rent checks, as the loan was eventually paid. None of this is included in the 6 month window. It would only appear within the financial records prior to this window.

And the trustee may view these transactions as payments to an insider, and avoid them, returning the money to the bk estate.

yes, this is my main concern. I need to find a way to minimize this risk.

[backtoschool]

I'm no longer collecting these rent checks, as the loan was eventually paid. None of this is included in the 6 month window. It would only appear within the financial records prior to this window.

And the trustee may view these transactions as payments to an insider, and avoid them, returning the money to the bk estate.

yes, this is my main concern. I need to find a way to minimize this risk.

Any payments going back a year will be seen as payments to an insider.

[music12]

i don't think the entire amount would be claimed to be income. if you are not an owner of the property, then clearly you are not entitled to the rent and only the amount you kept is income. if you are somehow an owner of that property, then you've got a problem.

if you have some record of the loan you made to this person, that would help. but i think it's just extra income even if there was never a loan.

[squeeze]

4. Since the tenants were paying rent to you and not the property owner, the trustee may look back for some transfer of that property. Did you ever own the property in question?

No, I never owned the property in question.

One tricky part about this is that I kept different amounts of the rental income each month. We worked it out on a month to month basis in regards to how much he could afford to let me keep.

Also, I should perhaps mention that I did also handle the maintenance and upkeep of these properties. So I was a kind of defacto property manager, though there wasn't too much work to do in this regard.

Any payments going back a year will be seen as payments to an insider.

I thought financial records were reviewed going back 2 years. What about payments going back farther than a year?

[music12]

i don't think it would be seen as payment to an insider, because the OP was never entitled to the entire rent money to begin with. not returning it to the owner of the property would be stealing.