Loan from wife's parents

[mb10240]

My non-filing wife borrowed about $1000 from her mom in the run up to my eventual bankruptcy. The money is definitely loaned -- her mom expects it paid back in full at some point in time and we intend on paying her back.

My issue is that :
a) there's no agreement in writing (this bothers me because I'm an attorney!)... I suppose we could memorialize the agreement in writing...
b) the trustee is going to see these fairly regular deposits (three over the course of three months) on my bank statements, they're in cash (basically, mother-in-law deposits money into my wife's personal bank account in Boston, wife takes cash out of the ATM and deposits it in our joint account), and may try to consider it a "regular contribution to household expenses."

I've already ran the numbers and even if I include it as a "regular contribution" in the means test, I'm still fine because it averages out only to be $165/mo over the past 6 months, but I'd now be in positive DMI territory (+$3.60).

I just want to avoid any unnecessary conflict!

[rjmwx81]

It's not really income if it's a loan. Problem is, in order to prove to the court that it's a loan, you'll need to list your mother-in-law as an unsecured creditor. Whatever you do, don't pay her back until the BK is done, otherwise the trustee can go after that money as an insider payment. The debt will technically be discharged in the bankruptcy but nothing stops you and your wife from paying her back after discharge.

[mb10240]

It's not really income if it's a loan. Problem is, in order to prove to the court that it's a loan, you'll need to list your mother-in-law as an unsecured creditor.

My concern is just about the agreement itself, since it's not in writing. I have no problem listing my MIL as a creditor, especially since my wife will be a co-debtor and she'll still be liable for it after I'm discharged.

[rjmwx81]

I would guess that most loan agreements between family members aren't in writing, but every bit of bankruptcy advice I've read says they need to be listed on the petition, so I'm guessing that trustees are used to small loans between family members not having much in the way of documentation.

[tobee43]

My concern is just about the agreement itself, since it's not in writing. I have no problem listing my MIL as a creditor, especially since my wife will be a co-debtor and she'll still be liable for it after I'm discharged.

remember law school...contract law??? if you can establish a structured payment pattern and show proofs....it can indicate the result of an agreed upon verbal contract....it does not necessarily have to be reduced to writing.

i.e. i verbally agreed to pay my mother in law back x amount monthly on this loan and here are the bank payment to prove it. you can establish you had a contract to repay without an actual written instrument. the proofs are clear when you have shown the pattern of payments.

your mother in law needs to be listed on the schedule of unsecured creditors...explain to her she'll have a nice tax write off next year and get her money back that way....

[backtoschool]

This is a small amount of money in the general scheme of things, and you can probably find enough extra expenses to offset it if you declare it as income. If you declare it as a loan you need to be very careful that you have not paid any of it back in the last year, since that will end up being a preferential payment and the trustee will go after your mother in law for what you paid back.

I personally think either way of declaring it will be fine, as long as you document everything.

[hillaryg]

i had this too. we borrowed about $45k from my mom but nothing was in writing. It wasn't a problem.. we did put on the doc's it was a personal loan, the amount, and dates and then it was discharged. we still pay my mom though... no way we'd stick her with that. we didn't have a problem with the trustee asking about it. the attorney said if we did have a problem, we would backdate a note is all

[tobee43]

i had this too. we borrowed about $45k from my mom but nothing was in writing. It wasn't a problem.. we did put on the doc's it was a personal loan, the amount, and dates and then it was discharged. we still pay my mom though... no way we'd stick her with that. we didn't have a problem with the trustee asking about it. the attorney said if we did have a problem, we would backdate a note is all

well, yes, i guess that is one way of doing it....

backdating a note is a "behind" and "closed" door phase... one would suggest.....LOL!!!!

[backtoschool]

The only problem with the loan would be if you were paying it back before filing and/or before discharge. That would be seen as a preference.

[HHM]

1. Loans are not income for the means test.
2. You don't "need" a written agreement, but its helpful.
3. But, the situation must pass the smell test. The circumstances need to look like loan, talk like a loan, and smell like a loan.

[keystone58]

My concern is just about the agreement itself, since it's not in writing. I have no problem listing my MIL as a creditor, especially since my wife will be a co-debtor and she'll still be liable for it after I'm discharged.

It doesn't matter if it's in writing, they'll just list it as a creditor you owe. My FIL did the same thing for us, he recieved the same letter the credit cards did. Don't worry about it.

[jnfrross]

We borrowed money from a close friend and the relationship has been somewhat strained because we haven't been able to pay back. We'll include this debt on our bk docs and it'll be discharged. Our intent is to pay her back someday after bk. Will she receive a discharge letter also? I don't want her to think that we're not paying at all just because it has been discharged.

[free2breathe]

If you include her, she will receive a notice. I would call and be straight up with her. Explain that you would love to pay her back today, but it would be considered preferential payment (if it's $600 or more), and through the bankruptcy process, they could actually take that money from her to pay it out to creditors as the trustee sees fit. Tell her that you technically had to list the debt to her in your paperwork and she will likely get a notice, but that you intend to pay her back when you can. I just think it's best to be honest if her friendship is really important to you. You can't control how she will react, but you have the best shot if you just lay it out there. That's my opinion, for what it's worth