Filing tomorrow - question about family debt

[Indygal]

Thank you all for your advice in advance. We are filing chapter 7 tomorrow and have all of our ducks in a row. Our atty just called and advised us that the trustee may try to go after my husband's parents for a debt we owe them and have been paying due to the favoritism issue. My question is can they still go after them if it is a credit card debt? It is not a personal cash loan - they have a credit card in their name and we pay the monthly payment directly to the credit card company, not to them. None of the debt on this card is theirs, they loaned us the card when we had to sell our previous home for a $35,000 loss with the understanding that we would pay it monthly. We have paid about $3,000 within the last 12 months.

[btbeme]

The Trustee can certainly go after any preferential payments. He is likely to ask your in-laws for most or all of what you paid them in the last 6-12 months.

[AngelinaCat]

But the OP has been paying the credit card company directly, not the parents. I would think the trustee would go after the credit card company.

@Indygirl. Welcome to the forum. How was this debt listed in your paperwork?

If you have been paying this one debt, but not your other credit cards, the trustee will certainly go after the money. The question is whether it will be your in-laws or the credit card company.

[IamOld]

indygal - is this a way you SUPPORT your ELDERLY parents??? Instead of giving them cash you pay on this card?

My mom in law is in her 80's lives on SS, and we REALLY "owe" her for giving us two years of being with us when my daugther was born like 12 years ago. She needs the $$ and we sent her around $120 for a while now - when she doesn't take it, my spouse pays her (the mom in law's) ONLY credit card. Atty said that's ok...mind you it's only been a few direct payments to credit card. It's because she won't take the money...sometimes we pay her light bill directly...

[LadyInTheRed]

11 USC 547 covers preference payments.

Subsection (c) of Section 547 lists transfers that cannot be avoided as preferential including the type described in subsection (c)(2):

(c) The trustee may not avoid under this section a transfer—
(2) to the extent that such transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee, and such transfer was—
(A) made in the ordinary course of business or financial affairs of the debtor and the transferee; or
(B) made according to ordinary business terms

I have no experience in this. But, if I were your in-laws and the trustee came after me for that money, I'd try to argue that the arrangement to use my credit card and the payments made on the card were part of the ordinary course of financial affairs of the debtor and transferee.

When looking that up, I came across the answer to AngelinaCat's question. Because the credit card was an obligation of the in-laws, the trustee would have to go after the in-laws, not the credit card company. Section 547(i):

If the trustee avoids under subsection (b) a transfer made between 90 days and 1 year before the date of the filing of the petition, by the debtor to an entity that is not an insider for the benefit of a creditor that is an insider, such transfer shall be considered to be avoided under this section only with respect to the creditor that is an insider.

To read section 547 in its entirety go to http://www.law.cornell.edu/uscode/us...7----000-.html

[Indygal]

Goodness, this is a mess. AngelinaCat - thanks! It is listed as owed to his parents, but we have not filed yet. We are filing tomorrow morning. So, it can be changed I think.
IamOld - no, it wasn't to care for them. We had to sell our last home 5 years ago and took a huge loss, had to come up with $35,000 to close. We withdrew all of our 401K and used his parents credit card for the rest.

As stated, we pay directly to the credit card company but it is in their name. We pay $250/month which is the minimum payment. This is not the only credit card we have been paying on though. We have managed to keep a few of the others current, but some have not had payment in 90 days.

We have not told his parents yet that we are filing, we are waiting until after it is done tomorrow. I just would like to be able to tell them what to expect. I don't know how they could come up with $3,000 out of pocket since it wasn't their money to begin with, it was Visa's.

LadyInRed - thanks for the research! Our attorney said the trustee MAY go after them for payments but she doesn't know. I really hope they don't. It seems like it could be said that the debt was made in the course of business terms.

[mountanddo]

What happens if they do go after the in-laws and they DON'T have the money? Do they get a judgement on them or just don't approved the BK?

[despritfreya]

Here is another spin. The payment on the cc is not “to or for the benefit of an insider” for an antecedent debt. Assuming OP is an "authorised user" of the card and OP is NOT paying for charges run up by parent in exchange for some loan made by the parent to OP, there is no payment to or for the benefit of parent on an antecedent debt. As a result the preference issue does not materialize. OP owed nothing to parent and borrowed nothing from parent. OP was simply using a credit card that was in the name of the parent to which OP was authorised by the CC company to run up charges. Further, some CC issuers make the authorised user liable for all charges and, you, as the "dumb" consumer, simply do not know if the card you are using falls within that parameter.

If this was my client and my client was an "authorised user/signer" I would list the CC company on Schedule F with parent as a co-signer on Schedule H. If there were payments in excess of $600 during the 90 days prior to filing I would disclose those payments on the Statement of Financial Affairs. I see this as a valid way to handle this situation and, to date, I have not had an issue with doing so.

Des.

[Indygal]

Ugh. We are not authorized users. Basically it was a one-time large payment on the card to cover closing costs of the house. The charge was over 4 years ago, no one has used the card since (it's actually closed), we just pay the monthly payment.

[despritfreya]

Ugh. We are not authorized users. Basically it was a one-time large payment on the card to cover closing costs of the house. The charge was over 4 years ago, no one has used the card since (it's actually closed), we just pay the monthly payment.

That puts a spin on it that I have no answer for. In essence you did "borrow" from family. The family member used the card and signed the charge slip (instead of giving you a cash loan) - actually sounds like a cash advance which is a loan. How much are we talking about over the past 12 months since that is the amount in controversy?

And never mind. I see that the amount is $3k

Des.

[despritfreya]

Now, what you can do if you do not want family involved. . .

Cut a deal with the Trustee to pay the $3k to him. If not in a lump sum, then over a short period of time, say 6 months. Trustees don't care where the $$ comes from. They just want $$ and they ususally will agree to terms so long as the terms are not over too long a period.

Des.

[Indygal]

Thanks so much Des. We would really like to not involve them if at all possible, so your suggestion is very helpful. We have a timeshare that is worth about $1,500 that we were not planning on surrendering but we are not at all attached to it, could something like that go toward the $3,000?

[despritfreya]

Timeshares, unless you can attach an exemption to it, are something the Trustee can sell. There may or may not be a market but it is an asset of the estate and, if you cannot claim an exemption, does not help in your situation.

Now, if it is exempt. . . can you use it as a down payment? Not sure but my gut says "no" since the Trustee would then have to market and sell it. Too much work. Cash talks.

Des.

[Indygal]

Well, I guess we'll just have to wait and see what happens. We knew this wouldn't be easy. Thanks for all your help

[btbeme]

Per Des, the Trustee does not care where the money comes from. I spoke with a well-regarded attorney here who said that the Trustee would expect about $3k to come from someone. Since they are human, they will travel the path of least resistance, which will start with you, then your parents, then the bank.

He opined that your attorney can make the case that your in-laws have no obligation since the debt is yours and the payments don't go to them. This argument will draw the in-laws and the card company into the mix. The card company will almost certainly fight back. Your in-laws will have an adverse reaction. Which leaves you, I am afraid, if you don't want the mess.

One couple I saw was successful in working a deal with the Trustee that had two components. The first was a reduction in the amount he wanted - from the full 12 months worth to 5 months worth of payments, since they argued that they didn't know they were bankrupt until 5 months prior and were trying to work out settlements with other creditors before filing. The second was a payment plan that used their forthcoming tax refund as the guaranteed payment. They had a small refund, but with the added child tax credits, it would be enough to cover.

My understanding is that Trustees can place a hold on your refund check, and file to have it sent directly to them.

I dunno. I'd balance out the pain of finding the $3000 (or negotiate for less) and a payment plan versus the pain of dragging the in-laws in.