Filing Chapter 7 - I have Some Concerns

[saint782]

Hello,

New to this forum and looking to see if anyone might be able to ease my anxiety over some aspects of our case.

Filing chapter 7 most likely in February after getting our tax return. So in March and April of this year we did 3 balance transfers across three credit cards. I did it to get our interest rates down and lower our payments because I knew how bad things were going to get with Covid and both my wife and I lost our jobs. I was trying to put cash away at the time so I sold our 2nd car for 7k right before everything shut down.

I used some of the cash to do the balance transfers. First one was for 5 k from one card and then I paid off a card that was 6 k and took 9 k from that and paid off another card that was 10k and transferred balance of 11k into bank account. It sounds confusing but in reality I took on about 7 k in new debt.

I paid on these accounts the minimum payments for 5 months and then tried to enter into a debt management plan and when they couldn't help we started looking into bankruptcy. We hired an attorney, spent down the money on household needs, lawyer's fee's and bought a second car which was the advice of our attorney. I'm working again, but my wife isn't she's taking care of our daughter now and we are living on the one income, it's not easy as our bills our tight but we are doing it. And we pass the means test no issues there.

My attorney is telling me while it's not likely, those companies could try to make an issue of these. I'm not seeing how they could seeing as we paid on these accounts for 5 months and the balances weren't zero we did it to try and help ourselves and avoid this altogether but it didn't work.

By the time we file it will have been 10-11 months since these balance transfers were made.

Any opinions out there? I'd love any and all feedback. I'm glad my attorney made me aware of all this so I won't be blindsided but at the same time the worry and stress over it is tough as well.

[justbroke]

I agree with your attorney that it's very unlikely that the creditor will pursue a non-dischargeability complaint. As you mentioned, you not only have distance from the time of the balance transfers (and/or cash advances), you also maintained payments on the accounts. An additional thing that works, mostly, in you favor is that you likely used this for your health and safety (and that of your family too). So it was not any sort of luxury.

Only cash advances (and probably, by proxy, balance transfers) are "presumed" to be non-dischargerable if they were made within 70 days of filing. You clearly are well away from that 70 days. The creditor would need real proof, not just speculation, that you did those transfers/advances while insolvent. It's a tough task and if the amount is less than $4,000 for each creditor, the likelihood of a complaint dramatically decreases. (Don't ask me where I get that $4,000 figure from... as it is speculative itself.)

So, as your attorney writes, you just never know. You did do the "right things" and you do have the distance and time as something in your favor. You also paid on the debt.

Worse case, is that you must pay it back. While it's possible, as your attorney says, it's probably not likely that this rises to the level where the creditor files a complaint. In fact, given SARS-CoV-19, most creditors probably realize the issues and will likely not get into costly litigation in bankruptcy.

[saint782]

Thank you for the reply, I really appreciate the advice!

I have another question, I'm a huge worrier and this entire thing has create a lot of paranoia I started looking back into my bank statements, Ive looked back 4 years now and I see things that happened a while ago that I'm concerned about. Thought I'd share here, I never intended to make my life this complicated but I really want to make sure we don't make some kind of mistake.

My father loaned me some money ( 32k) in 2016 to pay off debt, I paid him back with money from work for years...last check to him was 2/20/19.

We got a "gift" from another family member in April of 2017 for 18,000 to help us put a down payment on a house. We paid that family back with our own funds in 2018.

Here's the tricky part, we used some of the money from a personal loan and a balance transfer offer to speed up the process. We sent our family 10,000 to pay them off and my dad 5,000 at one point. The loan was for 50,000 and the rest went to finishing our basement. We paid our contractor in cash but I have records to prove that. This all happened in 2017/18

We've been paying on these debts this whole time, stopped paying in aug/sept of 2020. It's my understanding that my state (Colorado) has a 4 year clawback window. We've paid on this personal loan for 2 years and over 20,000 dollars has been paid back to them. The credit card has been paid back and balance transferred probably a few times since then but again payments have been made over this 4 year span.

On our paperwork for ch7 it only asks about payments to insiders within a year and gifts within 2 years and we are outside those windows on this and I know I'm most likely thinking way outside the box on this.

I just want to do everything by the book, I don't want anything to come back to haunt us. I hired a lawyer he isn't worried. But again, if anybody has insight into this the reassurance helps a lot.

Thanks

[saint782]

I did some more research on this and I think I have misunderstood the law here. The 4 year clawback in Colorado pertains to "property transfers" what we did was make "payments" to family and we did that more than a year ago and if they wanted to consider those payments "gifts" we did this more than 2 years ago.

I'm pretty sure I understand this now and was worrying needlessly but if anyone has insight on this, for instance could they look at all these payments as cash "gifts" and say they were "fraudulent transfers" and then start looking back 4 years ago on them.

The laws on this seem so grey. It really causes a lot of anxiety.

[justbroke]

I don't understand what you mean by "we've been paying on these debts this whole time, stopped paying in aug/sept of 2020." Are you talking only about the $50,000 bank loan (or cash advance), or does that include a payment on any loan made by a family member?

If you haven't paid a family member any portion of their loan -- or a gift -- within 2 years, then you can (probably) stop here. I would still make sure that I informed my attorney.

Otherwise, it is not a gray area. It's actually an area that catches many debtors by surprise.

If you were paying an insider, for a loan, then the lookback for insider transfers -- because that's what they are -- is at least one year. A debtor must disclose these types of payments on their Statement of Financial Affairs. Do not look to the date on which the loan was made. The bankruptcy estate is concerned with when payments (or gifts) were made to an insider. The Trustees can usually figure this out, but don't let them catch a debtor hiding property (money or physical property).

(For lurkers and interested readers, the reason why this is a very contentious part of the bankruptcy code is that people will -- and nearly consistently have -- paid insiders before they pay other general creditors. Insiders include family members, friends, and business partners. It's especially an issue if it becomes a fraudulent transfer, where the debtor is trying to offload property to people they know, for less than the equivalent value. For example, a debtor who sells their jet skis to their cousin for $100 each, just before filing... or even on contemplation of filing within 2+ years.. just performed a fraudulent transfer which the Trustee can undo. Or, in more extreme cases, ask the cousin to hold on to the property for a "little while" and retrieve it later.)

Don't quote me on the specifics of Colorado lookbacks for payments and transfers to an insider. From what I can tell it is either 1 years, 2 years, or more from the filing date. I hope that you informed your attorney of all of the loans and the last date you paid those loans. Also inform the attorney whether the loan is paid in full. Technically you are to list any open loans which you haven't paid so that they are discharged. This gets really sticky and tricky with family.

[saint782]

Thanks, to answer your questions and some of my own:

1. We have not paid any family members in the last 2 years. The last payment to a family member was 2/20/19. We are filing March of 2021 at the earliest. This wasn't intentional on my part to wait for this reason we are waiting for our tax refund.

The loan I was referring to was a 50,000 dollar personal loan, and some of the proceeds were used for payments to family, those payments were made in 2018. The balance on that loan is around 32k now as we've been paying the minimum payments for 2 years, we stopped making payments in August 2020.

2. Since these loans from family have no paperwork, are the payments I gave them considered "gifts" or "payment to insiders"?

3. We have answered all the paperwork honestly.

4. If the trustee were to ask in the 341 meeting: Have you paid family or "gifted" anyone cash in the last 4 years..well the answer is yes and then I don't know what happens from there. If they asked have I "transferred property" in the last 4 years, are these payments considered "transferred property".

I don't want to be accused of doing anything wrong, I want everything to go smoothly which is why I'm so concerned about this because it doesn't seem like there is a straight answer. I could file the paperwork correctly and then get asked this question.

5. What is the worst case scenario here? I have told my attorney and he thinks this isn't an issue but again I just don't know.

I really appreciate your feedback on this, thank you so much!

[justbroke]

1. We have not paid any family members in the last 2 years. The last payment to a family member was 2/20/19. We are filing March of 2021 at the earliest. This wasn't intentional on my part to wait for this reason we are waiting for our tax refund.

Time and distance from certain events are not bad when doing any bankruptcy pre-planning. It's just bad to make the wrong decisions in bankruptcy pre-planning... like selling your jet skis for $100/each to your cousin when they are worth $15K each FMV (fair market value). I think you're good here! Also, the proceeds of the personal loan doesn't matter since it's so far in the past. The key is what happened with "insiders" in the last year or two.

2. Since these loans from family have no paperwork, are the payments I gave them considered "gifts" or "payment to insiders"?

You don't need paperwork for a loan to be valid. A loan can be verbal so long as they giv eyou money and you promise to pay. (Verbal -- or oral -- loans with family members are the worse, because they can cause all sorts of confusing and grief because the terms were not spelled out. You don't have this problem since these loans were in the past and paid off nearly 2 years ago.)

3. We have answered all the paperwork honestly.

That's all anyone really can do or ask of you. But, the words like "fraudulent transfer" doesn't mean you did anything illegal or not above board. It could be innocent, like slling those same jet skis for $5K/each since it's your family member. The Trustee will care that they were sold for FMV, and if $15K is the FMV, it doesn't matter your intentions. It's still called a fraudulent transfer. So I didn't mean anything by using those terms.

4. If the trustee were to ask in the 341 meeting: Have you paid family or "gifted" anyone cash in the last 4 years..well the answer is yes and then I don't know what happens from there. If they asked have I "transferred property" in the last 4 years, are these payments considered "transferred property".

You should ask your attorney about this. If the Colorado law you reference is for "real property" then that's different than "personal property." Real property would be homes and land, and personal property is everything else (including cash, bonds, etc). I would make sure I asked my attorney to clarify what could be asked at the 341 meeting and to define "property" for you.

I don't want to be accused of doing anything wrong, I want everything to go smoothly which is why I'm so concerned about this because it doesn't seem like there is a straight answer. I could file the paperwork correctly and then get asked this question.

As I wrote, the mistakes are usually innocent and are really just to make non-insider creditors whole in case the debtor, even accidentally, preferred one creditor over another. It's just very typical when one creditor is an insider, and the other is a bank.

5. What is the worst case scenario here? I have told my attorney and he thinks this isn't an issue but again I just don't know.

I don't think it's an issue either. I think that for "cash" the lookback should only be about a year or two at worst. I have never heard of a 4 year lookback for cash (personal property). That four-year lookback may be for fraudulent transfers and not "payments" on a loan.

I really appreciate your feedback on this, thank you so much!

You are welcome.

I will usually say that most people really overthink these things and worry too much. Generally, there are no issues with preferences or insider transfers. Even if there were, they don't "directly" affect the debtor, as the Trustee goes after the "creditor" for the money or property. Yes, it could create some awkward family reunions, but it doesn't prevent your discharge unless there was actual fraud.

So relax, and just ask your attorney to explain how far they can look back for a payment which was not fraudulent. It's likely just one or two years.

[saint782]

I really do appreciate your help!, I'm an analytical details oriented person and anal retentive so it doesn't help in matter like this! lol

The 4 year look-back is part of something called the UFTA and it pertains to as you said "fraudulent transfers" It gives the trustee 4 years to "clawback" money and it's really confusing which is what started me worrying about all this.

He said 1 year for insider payments and 2 for gifts which was on the paperwork. Either way they are in the past and it sounds like a trustee would have no ability to "redefine" them as "fraudulent transfers" and then look back 4 years in the past and unwind them.

I don't know why then they would ask the question about cash gifts or property in the last 4 years but I guess I'll answer truthfully as always and just know the facts are on my side. If as you say the payments are looked at as loan paybacks I see no issue here.

I will review all this before we file. We have a bit of time but when we go over questions the trustee might ask in the 341 meeting I will address it again.

Feeling better about this .

Thanks so much!