stupid mistake with insider payment

[justbeach03]

Due to economy and failing biz, I let my "premarital" house go into forclosure.
I originally purchased the land the house is on and the adjacent one next to it with my father's money. I intended to pay him back for my lot and the other was his, but was titled in my name since they were purchased together and he lived out of state.

Due to the forclosure my attorney (prior to seeing a bankruptcy attorney) had me due a special warrenty deed to get the vacant lot out of my name, so the bank wouldn't go after a deficiency judgement and TAKE my dad's lot.
BIG MISTAKE- as I now find out from BK attorney. Thought he was going to fall out of his chair. I was only doing what counsel had told me.

The $$ I owe my dad (for the land the forclosed house is on) was his retirment $$ and what he was planning to use for little sister's college. I have been paying him back between $500-$1000 per month, but now I find out that this is insider payments. How screwed am I and can the trustee go after him to get that money back if it's already used for her college and he's retired?

PS-i am only filing because of failed business. I have been keeping up with personal credit, except for house.

[SMinGA]

I am guessing you will be a ch. 13 case. Logic is simply if you could afford to pay your dad $500-1000 per month, then you can manage a plan payment.

First step: stop paying you dad. Don't increase the amount of the 'preferential payments'. The total you have paid to your dad over the past 1-2 years (not sure which) before filing will need to be paid to your unsecured creditors thru your plan. Meaning I believe your dad will not be asked to repay the $ if you pay at least that much to unsecured creditors.

As to the special warranty deed - when was that? If too recent, then you may have a bigger problem. What is the value of the land? That could add to the minimum amount you need to repay to unsecured.

Last - what are you trying to accomplish in BK? Obviously to discharge the business obligations, but do you wish to save the house? Is there a 1st & 2nd, or just a 1st? What is it worth in relation to what you owe on the 1st? How much $ are you behind?

[momofthree]

In a non-consumer bk (business debt), the filing party is not subject to the means test, and can automatically file a chapter 7.

When was the last time you made a payment to your father? Can you hold off on filing bk until the insider payments are off of the look-back? Or are you facing garnishment right now? Since you mentioned a "failed business" do you currently have a job?

[backtoschool]

There is still the problem of transferring the property to the father's name two years before filing. Any transfers of property to insiders within two years of filing will be voided by the trustee and become part of the bankruptcy estate.

The payments made to your father within the last year of filing will also be voided by the trustee if they are over $600 total for all payments. I am an asset case due to two $500 checks I wrote my mother to help her with her expenses. If you want more info on that, just read my past posts on the subject.

[SMinGA]

The means test is only part of it though. I believe one still needs to show very little (or negative) DMI to file ch. 7 even if it is non-consumer debt. AND the preferential payments would need to be paid back to the trustee anyhow. Might actually be preferable to pay that back over 3-5 years. I don't think in a ch. 7 the trustee would allow it to be drawn out for more than 1 yr. Not when they'd have the alternative of going after the father for direct repayment.

In a non-consumer bk (business debt), the filing party is not subject to the means test, and can automatically file a chapter 7.

When was the last time you made a payment to your father? Can you hold off on filing bk until the insider payments are off of the look-back? Or are you facing garnishment right now? Since you mentioned a "failed business" do you currently have a job?

[justbeach03]

Geesh- sounds like I'm screwed every which way! I have a business with $700,000 in debt, that's the reason I'm filing...because I'm a personal guarentee. Had to let my house go- its been on the market for 3 yrs, renters left in spring 09 (I couldn't keep up with the $1900 payments). The bank wouldn't negotiate decreased payments, nor would they let me short sale. On top of that my manager was stole $40k while I was on maternity leave, so I had to cut my paycheck down, to keep biz afloat. Should've BK along time ago.

I do have paper work (promissory note/ prenuptual that my father had my husband sign) that states the lot was his. I figured since the bank was secured with the house and they wouldn't work with me...I should at least take the rest of the money and start paying back my dad. Was totally honest!

[SMinGA]

I think the only thing you can do right now is consult a few attorneys ASAP. Avoid bankruptcy 'mills' that handle hundreds of cases at a time, you tend personal attention.

What is your current income/expense scenario? Do you still have income from the failed business?

If you have too much disposable income for ch. 7, then you also have too much unsecured debt for a ch. 13. I believe the next option would be ch. 11. The only thing I know about ch. 11 is that its expensive to file - perhaps $10-20k.

[HHM]

There is a difference between preference and fraudulent transfer.

An insider preference is giving someone money or property to pay a prior debt. If the preference is paid within 12 months (to an insider, family member or biz partner) it cannot be done. There does not need to be actual intent to defraud.

Fraudulent transfer is the transfer of proper with the express intent of getting out of the reach of creditors when things start to go south. The usual look back is 2 years, but can go up to 10. Fraudulent transfer is harder to prove because the trustee must prove the intent to defraud.

A couple of issues (1) was this "intent to pay back your dad" ever memorialized? Was there ever an agreement, written or verbal that you owed you dad money for the land? If yes, then you have a preference issue. If not, no preference since there exists no prior debt. Thus, that puts you in the realm of fraudulent transfer; you might actually be okay, but it is touch and go.

How much is this land worth? If push came to shove, could you pay that number over 5 years.

[justbeach03]

Sorry for the delay- been closing a business.
HHM- Yes, I have Lots of paperwork (including a prenup he made my husband sign that stated the lot was his and husband had no rights to it. Also that I owed him money for the other forclosing house).

I stopped paying him in May and had down the property transfer of his land in April. No- don't have any $ to pay back trustee, as I will be unemployed in 2 months. On top of everything else the Oil crisis is killing my 2nd biz, too.

Guess I will use the money from biz assets sold to pay secured creditors over the next year to drag it out and wait till the lookback is over.
Is there anything wrong with that plan?