Asset case 7 months after filing

[creditguy]

Well it's raining and pouring at my house today. I got served divorce papers this morning and got a email from the Trustee this afternoon. I could use some advice...

I filed Chapter 7 on Aug 31 and was discharged on December 20. Up until yesterday I was a "no asset case". I filed my tax return and sent a copy to the Trustee as required by him at the 341 meeting. The Trustee has a list of assets that he wants now.

The Trustee wants $2600 of my 2009 refund(1/2 of refund amount and a calculation of the days since I filed). He also wants 1/2 of my 2008 refund $6500. In addition, he wants information now about $45K loan that I repaid to my soon to be exwife. There was nothing asked about that in the 341 meeting.

My attorney had previously advised the Trustee that the vast majority of the 2008 refund belonged to my non-filing wife at the 341 meeting and there was nothing more said about it until today. I got a hold of my attorney on the phone after I got the email from the Trustee today. He said that the Trustee would probably be entitled to the $2600 from this year although we could fight it....it was not probably worth the fight due to his fees. he then said since the Trustee is asking for $6500 from the 2008 return thathe could use the same argument on both claims and let the judge decide.

My question is what arguments can be made to exempt these refunds or reduce what I have to pay the Trustee? My wife made 80-90% of the income for both years if it matters.

Second question is does anyone know what arguments the Trustee could make to try and recover the $45K that I repaid to my non-filing wife's 401K and what defenses could be brought up to defend them? It seems to me that "preferential treatment" would be easily fought since I will be entitiled to receive 1/2 of my wifes 401K in a divorce.

Any suggestions? I am unemployed...soon to be divorced and bankrupt. I can't afford to chase a pipe dream with my attorney if the chances of success are slim.

Thanks in advance for any suggestions that are offered. I need a drink!

[backtoschool]

Well it's raining and pouring at my house today. I got served divorce papers this morning and got a email from the Trustee this afternoon. I could use some advice...

I filed Chapter 7 on Aug 31 and was discharged on December 20. Up until yesterday I was a "no asset case". I filed my tax return and sent a copy to the Trustee as required by him at the 341 meeting. The Trustee has a list of assets that he wants now.

The Trustee wants $2600 of my 2009 refund(1/2 of refund amount and a calculation of the days since I filed). He also wants 1/2 of my 2008 refund $6500. In addition, he wants information now about $45K loan that I repaid to my soon to be exwife. There was nothing asked about that in the 341 meeting.

My attorney had previously advised the Trustee that the vast majority of the 2008 refund belonged to my non-filing wife at the 341 meeting and there was nothing more said about it until today. I got a hold of my attorney on the phone after I got the email from the Trustee today. He said that the Trustee would probably be entitled to the $2600 from this year although we could fight it....it was not probably worth the fight due to his fees. he then said since the Trustee is asking for $6500 from the 2008 return thathe could use the same argument on both claims and let the judge decide.

My question is what arguments can be made to exempt these refunds or reduce what I have to pay the Trustee? My wife made 80-90% of the income for both years if it matters.

Second question is does anyone know what arguments the Trustee could make to try and recover the $45K that I repaid to my non-filing wife's 401K and what defenses could be brought up to defend them? It seems to me that "preferential treatment" would be easily fought since I will be entitiled to receive 1/2 of my wifes 401K in a divorce.

Any suggestions? I am unemployed...soon to be divorced and bankrupt. I can't afford to chase a pipe dream with my attorney if the chances of success are slim.

Thanks in advance for any suggestions that are offered. I need a drink!

I remember in January you posting about your Trustee, who was fishing around for some preferential payments, so I don't think you were ever made a true no-asset case.

As far as the tax returns go, the trustee is entitled to a pro-rated part of half of the returns based on when you filed bankruptcy, if you did not exempt your half of the return. The fact that your wife made 90% of the income is irrelevant. Half of the return is your asset, and if you did not exempt it, then the trustee can take a prorated portion of your half. You would need to use a wildcard or cash exemption to exempt your portion of the return.

As for the payment to your wife's 401k, well any money put into a family member's bank account or investment account is considered an insider payment if it is done within a year of filing. The trustee can claw that back, especially since it is not your 401k (which is exempt) but is your wife's (who is an insider that received a payment). At best, you would be able to exempt half of this if it were rolled directly into your 401k but the other half of the payment would be fair game for the trustee.

I think you definitely need to discuss this in detail with your lawyer. The trustee has legal right to the money as you have described the situation in my opinion.

[justbroke]

You definitely need to work with your attorney. You have some serious issues and I don't know if you're in a community property State or a State of equitable distribution. This may impact whether you have a reasonable cause under which you can claim relief from the Trustee's desire to take the money.

It's probably worth paying an attorney, otherwise, you may have serious issues with the 401(k) since that's no small amount. Yes, defending the complaint (AP) is going to cost money, and sounds like this isn't going to be cheap ($4K+ easily). There are many issues here, because of the (undissolved) marriage , that I would personally find a way to retain your attorney.

Here's the bright side. If it's an "insider payment", then the Trustee would go after your spouse for that money, so you wouldn't really need to worry. However, that might cause issues in your dissolution proceedings. This is a tough spot to be.

[creditguy]

I remember in January you posting about your Trustee, who was fishing around for some preferential payments, so I don't think you were ever made a true no-asset case.

As far as the tax returns go, the trustee is entitled to a pro-rated part of half of the returns based on when you filed bankruptcy, if you did not exempt your half of the return. The fact that your wife made 90% of the income is irrelevant. Half of the return is your asset, and if you did not exempt it, then the trustee can take a prorated portion of your half. You would need to use a wildcard or tax exemption to exempt your portion of the return.

As for the payment to your wife's 401k, well any money put into a family member's bank account or investment account is considered an insider payment if it is done within a year of filing. The trustee can claw that back, especially since it is not your 401k (which is exempt) but is your wife's (who is an insider that received a payment). At best, you would be able to exempt half of this if it were rolled directly into your 401k but the other half of the payment would be fair game for the trustee.

I think you definitely need to discuss this in detail with your lawyer. The trustee has legal right to the money as you have described the situation in my opinion.

Thanks for the quick reply. Your memory is good except that I was concerned the trustee might seek preferential treatment on the 401K... the trustee had not said anything about it at that point. I agree with your conclusion that I was never "made a true no-asset case".

I thought after my attorney told the trustee our position about the 2008 refund at the 341 meeting that the trustee was going to abandon that claim. Wrong. Do you or anyone else see a argument that my attorney could make to exempt those refunds or is he just trying to squeeze some cash out of me on a no-win situation?

With regard to the 401K repayment...is there any defense since the loan was taken out to fight a 3 year mechanics lien on the house and I would/will be entitled to 1/2 in the divorce? Would the trustee be able to take it if my wife were to file chapter 13?

Thanks again....and I will take your advice to thoroughly discuss with my attorney again.

[backtoschool]

Thanks for the quick reply. Your memory is good except that I was concerned the trustee might seek preferential treatment on the 401K... the trustee had not said anything about it at that point. I agree with your conclusion that I was never "made a true no-asset case".

I thought after my attorney told the trustee our position about the 2008 refund at the 341 meeting that the trustee was going to abandon that claim. Wrong. Do you or anyone else see a argument that my attorney could make to exempt those refunds or is he just trying to squeeze some cash out of me on a no-win situation?

With regard to the 401K repayment...is there any defense since the loan was taken out to fight a 3 year mechanics lien on the house and I would/will be entitled to 1/2 in the divorce? Would the trustee be able to take it if my wife were to file chapter 13?

Thanks again....and I will take your advice to thoroughly discuss with my attorney again.

I think that the trustee has a legal right to that money, at least at first glance. It is a matter of timing. You paid the loan back within a year of filing and that gives the trustee a right to go after the money, since that money could have gone to pay your creditors. Many people wait a year to file when they make large payments to insiders. Your attorney should have advised you to wait, but that is all water under the bridge at this point.

What state are you filing in? You can amend your petition to claim wildcard and cash exemptions for the refund if you have them left.

[creditguy]

Kansas.