Chapter 7 and SSD income

[JCOX75]

Hello!
I'm new here. This is my first post.
My husband and I just filed our chapter 7 bankruptcy petition (using a lawyer). My husband just received social security disability backpay last month. Our lawyer filed our bankruptcy paperwork last week. Due to a lot of things going on (such as a death of a close family member) we did not give the lawyer documentation on the bank account holding the disability back pay. We have no excuse other than we didn't have the money at the time we completed most of the paperwork and just overlooked the fact that we did not give the lawyer the bank statement later. We would like to provide it now, and amend (if that's the word) our bankruptcy paperwork to reflect the extra money and some possessions purchased with some of it. We thought disability was exempt from bankruptcy, however, I am seeing references online saying that lump sum back pay is NOT exempt. We will be in touch with our lawyer on Monday but we are going to be totally stressed out all weekend over this and I'm hoping for some insight here...

First, do you think a bankruptcy judge will think we tried to commit fraud and that we will be in some kind of trouble?

Also, do you think the court will take what is remaining of the back pay as part of our liquidation? We have spent more of the back pay since the filing, on things such as trying to catch up bills, repairs on our home, and repaying family members we have borrowed from over the last 3 years of trying to survive without income from my husband.

Thank you for your time.

[keepmine]

You've a right to correct the record. You don't have to worry about fraud.
Your big problem is repaying insiders. Your trustee has the right to pursue those relatives for the return of the money you paid them.

[JCOX75]

So, what would be the best way to go about this? Not claim I paid people back? I'm actually considering a motion to dismiss and just trying to come up with some kind of agreement with the creditors and not doing the bankruptcy at all. But I'm worried about that too, because I think a judge has to OK that and will want to know why. I just don't know what to do

Also, do you think the trustee will take the money that is currently left in the bank account? This is a beneficiary bank account in my husband's name that I am the payee for, because of the nature of his disability. The only funds in this account are SSD funds. Approximately half of the big lump sum back pay is still in there.

[starr4law]

Boy, not to dishearten you, but you have a big mess on your hands. I don't know that you will have an issue with the lumpsum distribution, but you are going to have to deal with the ramifications of the preferential treatments. You absolutely have to come clean about every penny that was spent - no matter what the outcome is. The penalty for getting caught? Club Fed.

Over the weekend, sit down and starting with the original sum of money, start figuring out every single dime that was spent, on what and who it went to. The trustee is certainly going to want to see it. After that, you are just going to have to sit back and take your lumps - or at least your friends and family will. Also, you will have to amend B/C to reflect the purchases that you made with the funds.

There is no nice way to say this, but you are a bankruptcy attorney's worst nightmare. These are the types of "mistakes" that gets attorneys barred.

[newbie2]

Please listen to everyones advice and notify your attorney first thing tomorrow morning. You'll be sick to your stomach about this until you do.

Also, there may be a way that you can pay the trustee for the preferential payments made to your relatives so that they personally don't have to turn over the money.

Good luck to you.

[AngelinaCatHub]

So, what would be the best way to go about this? Not claim I paid people back? NO! That is fraud. I'm actually considering a motion to dismiss and just trying to come up with some kind of agreement with the creditors and not doing the bankruptcy at all. But I'm worried about that too, because I think a judge has to OK that and will want to know why. True. I just don't know what to do

Also, do you think the trustee will take the money that is currently left in the bank account? Only to the point of the balance of lump sum. He may just let it go. This is a beneficiary bank account in my husband's name that I am the payee for, because of the nature of his disability. The only funds in this account are SSD funds. His disability could be a consideration if you are lucky. Approximately half of the big lump sum back pay is still in there.

It is my opinion that you should go through with your bk. Forewarn your relatives. What else did you use the money for? If for exempt stuff like food bills, utilities you are good. If a new flat screen, no.

We made every possible mistake including preferential payments. The Trustee allowed us to pay back that little indiscretion rather than sue back my relatives. To date, we are practicing our "new start" got the payment behind us and our ignorance was so apparent the Trustee gave us no trouble and cooperated with us very nicely. 'Hub

[JCOX75]

The bulk of the money was spent on home repairs like jacking up and securing a back addition (kitchen) that was sinking in to the ground, a new back door on that addition (the old one was not secure and literally falling apart) and some paint and carpet. My house is worth approximately $50000 less than what we owe so we thought this was ok. It's not like we are creating a luxury home, just making the crappy one we have secure and livable. Also we paid back one person $2000 and another $4000. If they were to allow the repairs to stand, and just pay back the $6000 instead of having the court go after relatives, would this be acceptable? We obviously would prefer not to, but we do have that money in social security funds.

[JCOX75]

It is my opinion that you should go through with your bk. Forewarn your relatives. What else did you use the money for? If for exempt stuff like food bills, utilities you are good. If a new flat screen, no.

We made every possible mistake including preferential payments. The Trustee allowed us to pay back that little indiscretion rather than sue back my relatives. To date, we are practicing our "new start" got the payment behind us and our ignorance was so apparent the Trustee gave us no trouble and cooperated with us very nicely. 'Hub

So, there IS a chance the trustee would allow US to pay back the money given to the relatives, rather than having them sued? We also paid a contractor to jack up a sinking addition to my house (not a cosmetic addition, it is my kitchen and bathroom) and put a secure door on the back (the old one was rotting apart) plus repair some crumbling plaster walls and paint a bunch of rooms. This was several thousand dollars total in supplies and labor. Does anyone know how this will be treated by the courts? Will my contractor be sued??

[starr4law]

You are getting WAY ahead of yourselves. You really need to contact your attorney and tell him/her what is going on. Many of the questions you are asking are "unknown" because part of it will depend on whether the Trustee/US Trustee/Bky Judge think that you hid assets or simply made a mistake (how anyone could forget is beyond me). They could go easy on you or not. Although the Trustee may allow recent repairs done on a home prior to filing (probably happens pretty often), but with using undisclosed assets? Hard to say.

Something else stinks with your story - you said "My house is worth approximately $50000 less than what we owe so we thought this was ok." Clearly, you were concerned about how repairing the home would affect the bankruptcy at the time you did the repairs, but yet "just overlooked the fact that we did not give the lawyer the bank statement." ?

[JCOX75]

When I said my house was worth was less than what we owe on it, all I meant was when we fixed some problems, it wasn't like were were adding to equity which would then be non-exempt. We are still in a hole with the house.

Also, we have a seperate court case (regarding my husband's visitation with his son) and my grandmother suddenly passed away, and this has had me kind of out of it. We knew we had to provide the info but just had not done it, and were not expecting the lawyer to proceed yet anyway. Yes, it is our fault, and we know that. I am just trying to get some answers to try to survive mentally until we see the lawyer Monday.

[wonderingrov]

I'm on SSD myself. I know when I was going over all of this with my attorney, she did say that the funds from the Social Security Act were not included as far as the means test, they did have to be factored in as income elsewhere on the petition (schedule J if I remember correctly - where they figure in your income as it relates to expenses).

As others have said, it is best to talk to your attorney about this as soon as possible. The information really should have gone to the attorney as soon as you knew about it - but, at this point, the sooner, the better.