preferential payment question....

[trader19]

i used my mothers home equity loan multiple times to finance some side business ideas. i borrowed $10,000.... paid it back... borrowed again... paid it back. all over the last 2 years. however, the last transaction was (6 months ago) a BORROW in the amount of 10k. so, while i have technically paid her home equity line back $20k over the last 2 years, i have borrowed $30k and now owe her the original $10k. recently i have lost my job... if i file for bankruptcy, can they go after the $20k i paid her... or since it was the same $10k recycled a few times... ending with me receiving the money last... would that mean that she has technically not received any preferential payments?

[keepmine]

You have a preference issue. From 537 of the bk code:

(b) Except as provided in subsections (c) and (i) of this section, the trustee may avoid any transfer of an interest of the debtor in property--

(1) to or for the benefit of a creditor;

(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;

(3) made while the debtor was insolvent;

(4) made--

(A) on or within 90 days before the date of the filing of the petition; or

(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and

[trader19]

wait.... so if i make a preferential payment.... but then get it BACK... they can go go after the first payment despite me already getting it back?

[keepmine]

Any payment made to an insider within a year is preferential and the trustee can sue nthat insider for the return of the money and then use it to pay all creditors.
I'd suggest you stop all transaction involving friends and family immediately.
Also, you would be required to list her as a creditor.

[frogger]

would that mean that she has technically not received any preferential payments?

It's walking like a duck, quacking like a duck, looking like a duck...........

You need to stop the money games with family and let this stuff age for at lease a year before you consider filing bankruptcy.

Time is your friend. The trustee is not.

[HHM]

Yep, it's an insider preference no matter how you slice it. Now, strictly speaking, the preference is not "your" (the debtor's) problem, it is a problem for the insider.

Options:
File chapter 13 and reconcile the value. A preference is still an asset, and like any asset in BK, you can file a chapter 13 and pay the value of the non-exempt portion through the plan thereby preventing the trustee from going after mom.
File chapter 7, and let the trustee do whatever.
Let the transaction age. Note, the clock runs from time you made a payment, and the look back for insiders (family members) is 12 months. And then file BK.

You can pay her back all you want AFTER the BK.

As for the "order" of payments and withdrawals, generally, the trustee (and court) will apply a rule of first in, first out regardless of how you and your mother "accounted" for the various withdrawals and payments. Thus, I am not sure how you owe her the "original" 10K when you said you say "i borrowed $10,000.... paid it back... borrowed again... paid it back." Each transaction will be considered separate and discrete.

So, basically, it looks like you still owe her $10,000 from 6 months ago (if I am understanding your post correctly). The issue is, how much in payments have you made to mom over the last 12 months. If zero, you are fine.

[trader19]

frogger.... i hear ya. i plan to wait a year at this point based on the advise of those on here. also, though... how about this... i have a LLC with my best friend. he often loans the business money for survival. when the business makes money, he repays himself. he basically finances everything while i contribute the labor. is the fact that he is paying himself back from an LLC bank account that i own jointly with him... considered a preferential payment?

[AngelinaCat]

wait.... so if i make a preferential payment.... but then get it BACK... they can go go after the first payment despite me already getting it back?

To you it might seem like the same money is going back and forth, but to an accountant, and the trustee--it is going to be considered several different transactions:

Transaction #1--you borrow xxxxxx money, and pay it back--transaction closed;
Transaction #2--you borrow xxxxxx money, and pay it back--transaction closed;
Transaction #3--you borrow xxxxxx money, and pay it back--transaction closed;--you get the picture.

Theoretically, the trustee can go after those three payments and Avoid those Transfers, though to you, it is the same chunk of money.

You need to schedule some free consults with BK attorneys in your area, and get their opinions. Hopefully, you will find a knowledgeable one that you feel comfortable with. You really do have some thorny issues that you need professional help with.