341 Meeting was a Mess

[boohx]

Had our 341 yesterday for Chap. 7. The trustee asked us what happened with the $43K equity we received from the sale of our rental property in Dec. 2009. She then asked us to submit receipts or statements where the money was spent. Looking at the trustee face, she smelled a fish where there isn't. We didn't file for bk to defraud our creditors. My husband lost his job and his unemployment will totally run out in November and we are drowning in debt.

Our lawyer didn't tell us this will raise a red flag and that we should file a paper trail where the money went. We think our lawyer didn't even review our papers until before the hearing. He should have known better. He has been hard to get a hold by phone or email the past 2 months and embarassly speaking we didn't meet him until a few minutes before the hearing. The only person we were in touch with was his Client Services Director who was also elusive. Our lawyer was very ill prepared and after the meeting he told us he didn't expect the trustee to ask for statements regarding the $43K. What the? Are you kidding me?

Anyways, I told the trustee we paid some of the money to our creditors and it wasn't enough to cover everyone. But before I can say that there wasn't enough money for the creditors after I gave my mom $30K for her heart surgery, my husband cut me off and told the trustee we also spent some of it to for daily living expenses. My mom's doctor is willing to give us a copy of her medical record and $30K receipt.

So will this create a bigger problem for us for not paying our creditors first before taking care of a family member? I don't trust my lawyer anymore. I'm so mad for hiring this useless piece of you know what. We hired him to advice us and protect our interest and he didn't do both. And can I change BK lawyer midstream? Will this create suspicion on the part of the trustee?

[nceguyfromne]

Wow, I'm really sorry your attorney left you hanging like that. $43K is A LOT of money in the bankruptcy world, especially a Chapter 7! OF COURSE the trustee is going to want details on how it was spent and what remains, and there are certainly some potential complications.

On the plus side, you were right not to fork all this money over to your creditors. In fact, if you had, the trustee probably would have seized it back from them and placed it in your bankruptcy estate to be evenly distributed to ALL your creditors at some point later on, and you can bet you would not have been receiving any of it back to help with your mom's surgery costs.

As for your mom's surgery, I'm not really sure where this falls. On the one hand, you were paying a debt; on the other hand that debt wasn't yours. Whether or not it's considered contemporaneous (like rent or utilities) and whether or not it matters that you paid the money on behalf of a non-dependent are things a good lawyer should be able to help you determine. If you owed your mom $30K for a loan she made to you in the past and this money was repayment, that would DEFINITELY be a problem; she would have to hand it back over to the trustee. Did you pay the doctor's office directly or give the money to your mom to pay them (I'm not sure it matters). I would definitely get documentation of the $30K payment regardless.

I think you should be prepared for at least some possibility that that $30K is going to be taken back from the doctor and your mom will once again owe the money. If I were in your position, I would be talking with new attorneys. Anyone who failed you so badly the first time around should not be trusted to make things right for you now.

[despritfreya]

You are required to account for the money. Funds paid to or for the benefit of your mom ($30,000.00) are recoverable by the Trustee. The Trustee can look to mom, the doctor and/or, even on ocassion, you for the recovery of the fraudulent conveyance.

As to the balance of the $43,000.00 you need to get as much info as you can as to what happened to the $$. If the funds were sitting in the bank then your bank statements are where you should start.

As to your attorney, yes, he should have discussed this with you and prepared you for this issue - especially the transfer to mom. This assumes, of course, you told him 1st about the $$ you had in December, 2009 and 2nd about what you did with it.

I agree with one poster. If you did discuss the issues with the attny and the attny said "no big deal" you need to find a new attny because it is a big deal in the context of a Chapter 7. Maybe you should have filed a Chapter 13. Maybe you need to convert the case to a Chapter 13. You need to discuss this matter with compentent counsel, not some "Client Services Director" what ever that is.

Changing attnys midstream is not a red flag, especially if the attny you used has a not so stellar reputation in the eyes of the bk ct and/or the panel trustees. Your new attny is going to do "damage control".

[tcreegan]

bad lawyer

Hello boohx,

My condolences on getting a bad lawyer. Maybe a good one will get your retainer refunded....

Some places your local consumer credit counseling (a non-profit HUD agency) will maintain a list of good local BK lawyers.

If the trustee goes after the 30K it will make a difference if you gave it to Mom or to the Dr. It may sound heartless (no pun intended) but if you gave it to the Dr., it might be a lot easier for a heart surgeon to fork over 30K than your Mom.

I cannot fault you for paying for the heart surgery, and I hope the trustee realizes that someone's life is more important than numbers in a bankruptcy.

Best of luck to you in all of this,

Tom in Colo

[olivies]

Maybe I'm wrong, but does the $43K fall outside your 6 month income look back? It could just be that the trustee merely wants a paper trail, to make sure you're not sitting with $40K under your mattress.

[tobee43]

i think it may be 1 year for the income property time limit....not 6 months...but please correct me if i'm wrong.


your attorney should have let you know this was going to be a problem.

personally, i think if you can produce the 30k from the doctor and the other monies went for daily living expenses, food, car payments etc...you'll be ok.

she wouldn't be doing her job, as bad as it appeared if she didn't question it. your attorney should have had you wait it out until dec to file..and then you could have just answered NO to the question about selling the property within the one year time period...

also...the trustee needs to justify her actions...if she can prove everything was on the up an up then both she and you r good to go....believe i'm NOT sticking up for the trustee, however, i know they MUST clear these things up before they can let it go. people forget the trustee's job is to represent the creditors in this situation. so they need to put these things on the "record" even for your sake.

i think if you come up with the receipts you will be fine...

best of luck!!

[doomed]

Ouch, this worries me, as we blew through our savings of over $30k in a year living stupidly... Good luck to you, OP.

[backtoschool]

I hate to be a bringer of bad news, but my case was turned into an asset case because of two $500 checks (total $1,000) that I wrote my mother in the year before my bankruptcy to help her with her expenses. The trustee went after my mother for the money. I ended up paying him (I didn't want my mother to have to pay him). Any money over $600 transferred to a family member in the year before bankruptcy can be taken back by the trustee as a "fraudulent conveyance". I think it is likely the trustee will go after your mother for the $30k. You will still get your discharge, but the trustee will go after your mother for $30k and declare you an asset case. Your lawyer will have to settle with the attorney and come up with a payment plan and/or a settlement amount for that $30k.

In bankruptcy, the cash sittiing in your bank account from the equity of your home is an asset. To give 30k of that cash to your mother for surgery when your creditors are not being paid, and then to declare bankruptcy, is a "fraudulent conveyance" of the 30k of assets that should have been part of your bankruptcy estate. Your attorney should have known this, and should have advised you to wait at least a year before filing after giving your mother that money. You cannot transfer money that is more than $600 to a family member for a year before you file for bankruptcy, or the trustee can go after the family member for that money.

As to the other $13k, if you spent it on necessities, etc the trustee won't have a case. If you blew it in Vegas, or gave it to another family member that is another story. You will need receipts to show where that 13k was spent.

[justbroke]

A Chapter 7 discharge, and a bankruptcy discharge in general, is not meant for people who really just wasted their money "knowing" that they'd just file bankruptcy to clean the slate. This is known as the "bad faith" argument. If you spent money unwisely, it can be questioned.

Whether someone has a bad attorney because he didn't caution you strong enough that large payments will be seen bad by the Trustee, isn't enough for me to blame the attorney. I don't think you were open and honest with the attorney. An attorney can only help you if you disclose everything fully. Just saying that you had $43K post a sale and spent it... with the attorney saying it shouldn't be a problem... is totally different from you had $43K post a sale and gave $30K to a relative.

People are quick to blame attorneys these days -- and trust me, there are some who really deserve it -- but many many times, it's that the debtor didn't fully disclose the details to the attorney. Most people think that they'll "never" know because it was all cash.

I'm sorry that you were caught in this position of now having to explain yourself, but being completely open with an attorney is very important. There is no bankruptcy attorney that I know of that would let you file if you told them upfront that you transferred two cars for less than market value within a year of filing, or gave money to friends and family just before filing.

[tobee43]

good point justbroke.

i know someone that was before she actually filed 1. she had to liquidate her assets...then 2. she had to wait almost a year to file ...this all under the advise of her attorney.

this person ended up going chapter 13 but i think she was honest with her attorney and in return her attorney advised her accordingly.

however, i know there are attorney's out there that are just not that great and is possible you got one of them....if you feel you were not informed, cut your losses and hire someone else. i would.

[justbroke]

I'm sure there are some really bad bankruptcy attorneys out there. I think in this particular instance, not all was disclosed. Unfortunately, the end result is that the Trustee is very interested in where the money went and the digging will result in some not so nice results.

Even worse, it would be near impossible to get a dismissal of the case since the Trustee now sees money. I mean, that's their job... to find the money and assets.

[tcreegan]

Dr vs Mom

Hi all,

Since there are some knowledgeable posters here, would it make a difference if the money went directly to the Dr ? Or is that still going to Mom b/c it was her bill?

curious,

Tom in Colo

[despritfreya]

In response to:

"would it make a difference if the money went directly to the Dr ? Or is that still going to Mom b/c it was her bill?"

Makes no difference as the transfer was to or for mom's benefit. The Trustee can seek recovery against the doctor or mom or both. Now, in your scenario, the Trustee may only go after the doc as the doc probably has deeper pockets but more than likely he will go after everyone and collect from wherever he can.

[tobee43]

well...doesn't it also depend on when the 30k was actually PAID to the doctor???

my understanding is your are not suppose to pay anyone within a certain amount of time and if so, the trustee could attempt to recollect the amount you paid to that doctor FROM that doctor, and then....put in BACK into your estate & distribute it accordingly. however, i believe there are time limits involved.

[Beeheery]

Where did the OP disappear to???????