Trustee going after preferential payment; any recourse against debtor?

[cupcake]

My exH and I both filed CH7 last year around the same time (Feb/March). We both filed individually and as no-asset cases. My CH7 was in and out and my case was closed shortly after discharge. My exH's CH7 was a different story. The TT (who was also my TT) converted him to an asset case but he at least got his discharge in August. Since August, nothing much happened in his case. The TT filed his initial report but my ex's attorney never got a copy of it. Until yesterday, my ex really had no idea why he was converted to an asset case and what assets the TT wanted from him.

I logged on to Pacer yesterday and saw that the TT filed an Individual Estate Property Record and Report. We learned from the report that the TT is abandoning all of my exH's assets with the exception of one line item: unscheduled "multi poss prefs" valued at $1. The report also showed that the TT subpoenaed copies of canceled checks from my exH's bank account. Apparently, the TT is going after some possible preferential payments (our interpretation, anyway) and we think we know specifically what payments he wants. BTW, my ex has a call into his attorney but the attorney has been very non-responsive since his 341.

Here's the deal: a month or so before he filed, my exH had some cash that he was unable to exempt so he purchased a new furnace, central A/C and a new roof for his house, all of which genuinely needed to be replaced. His attorney advised him that he could do this in order to "get his affairs in order" prior to filing CH7. His attorney advised him that these expenses were completely legitimate. Looks like now the TT is going after the heating/cooling and roofing companies for preferential payments.

If the TT is successful in his attempts to take the money back from these entities, will they have any recourse against my exH? Can they go after him to either seize their property or sue him for the money they had to pay back to the TT?

TIA!

[AngelinaCatHub]

They can put a mechanics lien on the house. It is odd that this TT is going after an essential item. However 30 days was a bit close and looks like a planned gaming situation. I am sure it is not, except for appearances. 'hub

[music12]

this is strange. payments that are simultaneous with services provided are not preferential payments, otherwise every utility bill and rent check would be preferential! it's a "preferential payment" only if it goes to a prior creditor.

i don't believe they can put a mechanic's lien on the house after the bk was filed. whatever the TT gets from them, i think the exH is off the hook.

[cupcake]

They can put a mechanics lien on the house. It is odd that this TT is going after an essential item. However 30 days was a bit close and looks like a planned gaming situation. I am sure it is not, except for appearances. 'hub

I agree, that it probably does appear to be a gaming situation. Personally, I wouldn't exactly say that he was playing games, but he was certainly planning for BK and looking to spend down that cash prior to filing. However, the roof and furnace were in horrible disrepair. Based on my own personal knowledge, having lived in that house for ten years, we were told the furnace was potentially dangerous and should have been replaced five years prior. The central A/C is questionable...

this is strange. payments that are simultaneous with services provided are not preferential payments, otherwise every utility bill and rent check would be preferential! it's a "preferential payment" only if it goes to a prior creditor.

i don't believe they can put a mechanic's lien on the house after the bk was filed. whatever the TT gets from them, i think the exH is off the hook.

I was thinking the same thing about whether or not those payments should be considered preferential. Perhaps the TT is hoping that these contractors will be intimidated by him and just hand over the cash? They are both small local companies so maybe they would just give him the money rather than go through the hassle of getting legal representation and fighting it.

I'll have to look into the mechanics/construction lien issue. He kept the house but didn't reaffirm, so he's just riding through. If a lien gets put on the house I guarantee he will walk away from it. It's a small older house and the property value has depreciated so much that it will take 10+ years for him to regain any equity in it. If a lien for $10k or more is placed on it, he'll surely walk.

[justbroke]

Actually, I think the Trustee's peference claim is hogwash. I think the Trustee is just seeing what s/he can get. In order for it to be a preference under 11 USC 547(b), the payment would not be "for or on account of an antecedent debt owed by the debtor before such transfer was made". The installation service is not an antecedent debt and is a simultaneous exchange for services. The installer may not even be a creditor. So a preference it probably isn't, especially if the installer is not a creditor.

I think the Trustee is fishing.

You said "our interpretation" was preferential payments. Do you have the actual words that are used and statute?

[billf]

We did the same thing, i.e fixed the roof. It'd been leaking for years. Attorney said it was absolutely fine to do that. No way can this be a preferential payment. Makes me think there are indeed some nasty trustees out there.

[backtoschool]

Actually, I think the Trustee's peference claim is hogwash. I think the Trustee is just seeing what s/he can get. In order for it to be a preference under 11 USC 547(b), the payment would not be "for or on account of an antecedent debt owed by the debtor before such transfer was made". The installation service is not an antecedent debt and is a simultaneous exchange for services. The installer may not even be a creditor. So a preference it probably isn't, especially if the installer is not a creditor.

I think the Trustee is fishing.

You said "our interpretation" was preferential payments. Do you have the actual words that are used and statute?

I agree with justbroke that the trustee is fishing. My trustee did the same thing and my lawyer pushed back and I ended up with a $1,000 preference for two $500 checks that I wrote to my mother to help her with expenses.

I think that you can push back on the preferences, but be prepared for something to stick. The trustees have to pay their bills and bring in a certain amount of money from the cases they oversee, and it looks like your trustee has decided that he needs to get some money out of your case.

[cupcake]

Actually, I think the Trustee's peference claim is hogwash. I think the Trustee is just seeing what s/he can get. In order for it to be a preference under 11 USC 547(b), the payment would not be "for or on account of an antecedent debt owed by the debtor before such transfer was made". The installation service is not an antecedent debt and is a simultaneous exchange for services. The installer may not even be a creditor. So a preference it probably isn't, especially if the installer is not a creditor.

I think the Trustee is fishing.

You said "our interpretation" was preferential payments. Do you have the actual words that are used and statute?

The actual words used on the report was "multi poss prefs" and there is no statute cited. We interpreted that to mean he was going after the contractor payments because there is nothing else that could be possibly be considered a preferential payment. And, because my exH's attorney never requested or received the Trustee's 341 report, we weren't sure. My ex talked to his attorney this morning and he confirmed that the TT is going after the contractors for preferential payments.

We did the same thing, i.e fixed the roof. It'd been leaking for years. Attorney said it was absolutely fine to do that. No way can this be a preferential payment. Makes me think there are indeed some nasty trustees out there.

Yes, and we both got the nasty one. My attorney referred to him as "smart and greedy" to be exact. He's just doing his job and trying get paid, I get it. He's hoping these companies will just hand over the cash to be done with it.

I agree with justbroke that the trustee is fishing. My trustee did the same thing and my lawyer pushed back and I ended up with a $1,000 preference for two $500 checks that I wrote to my mother to help her with expenses.

I think that you can push back on the preferences, but be prepared for something to stick. The trustees have to pay their bills and bring in a certain amount of money from the cases they oversee, and it looks like your trustee has decided that he needs to get some money out of your case.

According to my exH, his attorney isn't going to get involved at this point. He is going to let the TT do his thing and see what comes of it. Should the attorney get involved in this? Is there a benefit or detriment to my exH if he does nothing?

[creditguy]

Originally Posted by AngelinaCatHub
"They can put a mechanics lien on the house"

No they can't. To file a mechanics lien the work would have had to been performed within 90 days of the filing. In this situation the time line has passed.

He could certainly be sued but definitely will not have a valid mechanics lien on the house.

[music12]

well, the OP said that the exH had the work done a month before filing. so are you saying they can file a mechanic's lien in spite of the automatic stay?? sounds strange; i didn't know there was a mechanic's-lien-exception to the automatic stay.

it doesn't make any sense that he can be sued. that way, any creditor who got a preferential payment would be able to collect after the bk. that violates the whole idea of a fresh start. so i don't think he can be sued.

[creditguy]

Bankruptcy law has nothing to do with Mechanics lien law. I am NOT saying they could file a mechanics lien in spite of the automatic stay. I am saying they CAN NOT file a mechanics lien because the work was performed over 6 months ago. A valid mechanics lien requires certain things be done.....one of which is the work must have been performed within 90 days.

"It doesn't make sense that he could be sued"

Why is that? I assume since this *might* be a preferential treatment (which I agree with the other responses that it is not) that means that this contractor was not included in the creditor matrix.....meaning that a discharge does not apply to the contractor or his financing company.

[music12]

i don't believe the actions of the trustee within a bk case can create a non-dischargeable debt where there was none before.

[creditguy]

" I don't believe the actions of the trustee within a bk case can create a non-dischargable debt when there was none before."

I completely agree. That is why I believe the husband could still be sued if a payment on account were reversed by someone(like the trustee or a bank reversal..etc.) The end result is the contractor who did the work would not get full payment for that work. His only remedy would be to file suit. In this case he could not file a Mechanic's Lien. And all this is based upon the assumption that the contractor was not included in the creditor matrix.

[justbroke]

I completely agree. That is why I believe the husband could still be sued if a payment on account were reversed by someone(like the trustee or a bank reversal..etc.) The end result is the contractor who did the work would not get full payment for that work. His only remedy would be to file suit. In this case he could not file a Mechanic's Lien. And all this is based upon the assumption that the contractor was not included in the creditor matrix.

If the debt is discharged in bankruptcy, this is moot. The mere fact that a Trustee has recovered the payment as a preference, is pretty much proof positive that any personal responsibility for that debt would be extinguished upon discharge of the debtor. His being included or not included in the matrix, is irrelevant (in most Jurisdictions). If the contractor were smart, they'd file a claim against the estate, if the Trustee makes it an asset case, and especially if the Trustee is pursuing the avoidance of a preference.

In other words... there would be no suing, as such would be contempt and a violation of the permanent discharge injunction.

[creditguy]

Help me understand here....

"The mere fact that a Trustee has recovered the payment as a preference, is pretty much proof positive that any personal responsibility for that debt would be extinguished upon discharge of the debtor. His being included or not included in the matrix, is irrelevant "

How would a debt get discharged if it was not included in the petition? For example, say I take $5000 cash and pay a contractor in full 30 days before filing BK? There is no debt, therefore as a debtor I would not include the contractor on the creditor matrix. After my case is filed the Trustee decides to try and recover those funds from the contractor and succeeds. Exactly how is the personal responsibilty extinguished if the "debt" is not included in the petition?

"If the contractor were smart, they'd file a claim against the estate, if the Trustee makes it an asset case, and especially if the Trustee is pursuing the avoidance of a preference."

I disagree. I think a smart contractor would wait for the debtor to have his debts discharged and then file suit within the statute of limitations. Why would a contractor want to get invloved in BK court if he didn't have to? Especially if he was only going to get paid pennies on the dollar by being lumped in with everyone else in an asset case.