Preferential Payments to Credit Union Credit Card

[GHG7F0]

I made about 5K in payments to a joint credit card at our credit union in April from money we received from a tax return. At the time I didn't decide to file for bankruptcy, as a matter of fact I still haven't decided. The reason I made the payment was I knew their was a chance I may file in the future and this is the only joint account we have and I would not want her involved.

I don't currently qualify for the means test unless we separate which may happen as the marriage is in bad shape.

Would this be considered insider Preferential Payment since she is benefiting from this?

Thanks

[Dorsey]

GHG, welcome! You'll find so much useful information here and a lot or moral support!

A "preferential payment" is not defined as a transfer of value to someone who is NOT a creditor (i.e. your wife). So, let's not call it a preferential payment. The question is whether your payment is a fraudulent transfer to an insider. A preferential payment is a payment you make to one creditor at the expense of other creditors, i.e. you favor one creditor over another by making a payment to one and not the other.

Just to be sure you understand, preferential payments shouldn't concern you. These types of payments are of concern between the Trustee and the Creditor who was paid. If the Trustee believes that securing that $5,000 payment would be in the interest of your other unsecured creditors, he may sue that creditor to get the $5,000 back. However, you would not be involved in that lawsuit. It has nothing to do with you.

So your concern here is more narrow that you might think. I think your real question is whether you inadvertently and improperly transferred something of value to your wife just prior to filing a petition. Unfortunately, I don't have an answer for you tonight. But I suspect someone will come along here and post something helpful for you. Some of the relevant facts that might be considered is whether your wife has since pulled $5,000 from the card or charged on the card in an atypical fashion. If she continues to use the card in a way she has always used the card, I would think you're ok. But if she's pulling money from the card or charging more than she normally does, one might conclude that you have used the card to transfer money to her...money that might have otherwise gone to creditors. But I am not an expert on this...and it would benefit you to hear what others have to say.

As you spend time in this Forum you will find that people can best help you if you use precise definitions and distill the issue down to its core as best you can. This same principle would be applied to your use of the term "tax return." You received money from a tax REFUND not a tax return. A tax return if the paperwork you filed, the tax return was the check you got back.

[GHG7F0]

My wife is not the problem, she doesn't even use the card. I saw a attorney today on a consult and he said the trustee could call this a insider preferential payment and ask for the money from my wife. I was hoping I could wait 90 days after he mentioned preferential payment and be ok, but he said it would be 1 year, because my wife benefited from this payment. She benefited because it would get discharged in a chapter 7 and my wife who is not filing would have less to pay.

Thanks...

[Dorsey]

Yeah...I'm not an expert on this, but I think the term "preferential payment" is misguided. But nonetheless, I just find it difficult to believe that the $5,000 payment could be considered a transfer to an insider if your wife hasn't pulled money from the card. I could see that she might benefit from a portion of your debt being discharged (aside from the $5,000), so another issue for people to address here is how joint credit accounts are handled in bankruptcy. Perhaps this is the real issue, in fact.

One thing I have learned from these forums, is that a lot of advice that people get from their attorneys is wrong and the people here report some bad experiences. So it's good that you're confirming all of this. (As an non-bankruptcy attorney it pains me to say that.)

[ScaredINMich]

We paid about 2000 on a credit card a month before we filed. (Like you didn't plan on it) and it hasn't been an issue so far. My lawyer said if the trustee wanted to he could take the 2000 from the credit card company and spread it to my other debts.

[despritfreya]

I do not believe this is an "insider" transaction:

1. YOU were obligated to the CU as it was a joint debt regardless of who ran it up.
2. The preference period is 90 days to a non-insider (the CU) or 1 year to an insider (your wife)
3. If you file within the 90 day window the Trustee will contact the CU.
4. If you file within the 1 years window but beyond the 90 day window I doubt the Trustee will attempt to recover the $$ from your wife under 11 USC 547 since you did not owe the $ to your wife, you owed it to the CU.
5. The payment does not appear to be a "fraudulent conveyance" as defined under 548 since you paid your debt and such was not done with the intent to hinder, delay or defraud.

Des.

[GHG7F0]

If I do decide to file it would be at least 90 days from now. My only concern was the trustee trying collect from my wife as I was told. Your explanation makes since to me.

Thanks...

[despritfreya]

If I do decide to file it would be at least 90 days from now. My only concern was the trustee trying collect from my wife as I was told. Your explanation makes since to me.

If this issue as it relates to your wife is a concern, no matter how small a concern, the simple solution is to file within the 90 preference window and let the Trustee go after the CU. The Trustee will go after the deep pocket and the one of least resistance which is the CU. Of course, if the CU sends $$ to the Trustee I would imagine that it will consider the debt as still owing and seek payment from your wife who is not in bankruptcy - but wait, you are in a community property state therefore, so as long as you remain married and do not have a "legal separation" your discharge will protect the "community".

As another consideration, now that I realize you are in California (should have noticed that before), the Trustee is highly unlikely to consider it an insider preference or fraudulent conveyance as it relates to your wife since it is a community debt.

Des.

[GHG7F0]

Thanks...