Here is my scenario: 3 years ago me and my business partner had to borrow $42,000 from my sister to pay off some debt. In those 3 years we have been making monthly payments of $636.67. We owe another 2 years on this loan. This month I have finally went to see an attorney to file. I have been current on all of my payments (credit cards and loan to my sister) but this month will be the first month we can't pay. So we won't be paying anyone including my sister. My attorney that I have hired says not to worry about insider payments because I was paying everyone monthy as well as my sister. But when I stop all payments my sister has to be included in that. He said if I do that I haven't made any preferential payments because I was paying everyone equally.. Does this sound right? I would hate for the trustree to come after my sister. Considering I paid her equally just like everyone else. Any advice would be greatly appreciated. I am not filing until probably September.
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One of the defenses to a preference action is that the payments were “ordinary course” payments. Basically (but it is a little more involved than this), if you were treating all creditors in the same fashion and making contractually due payments as they came due, then the recipient can use the ordinary course defense to fight a trustee. The problem is cost.My attorney that I have hired says not to worry about insider payments because I was paying everyone monthy as well as my sister. But when I stop all payments my sister has to be included in that. He said if I do that I haven't made any preferential payments because I was paying everyone equally.. Does this sound right?
You must disclose payments made within the preference periods if the total amounts to each creditor meet the statutory threshold. The Trustee is likely to assert a claim against the parties you listed. Those parties will either have to defend their positions or offer to settle.
Defending/prosecuting costs money on both sides. Due to the cost, any attny worth his/her weight is going to look at the costs and, if justified, advise the recipient of the preference (your sister in this case) to settle. We do this all the time. It’s called a Rule 9019 compromise settlement. The approach is no different from an insurance company paying out a “nuisance claim”. Offer, say, $5,000.00 to make it go away because legal fees in defending/prosecuting could be higher. It’s blackmail but. . .
Des.
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