Valid Transfer?

[bottomsup]

I have a friend who will be filing for bankruptcy. However he owes me money for a SBA loan that we had together. I paid part of his portion of the loan balance for him because he didn't have the funds at that time. Now he has the funds and ready to pay me back.

Would I be vulnerable when he files BK? Can they get that money back from me? What steps do I need to take to protect myself?

[BassBoy]

If he pays you more than $600.00 (I believe that's the amount), it's considered a preferential payment and the Trustee/BK Court can recover this. My advise is since this is a friend, let him repay after his discharge. Debtors are entitled to voluntarily repay any debt after discharge. Is this something you and he could come to terms on and/or work out together?

[HHM]

BassBoy is correct, whatever you do, DO NOT have him pay you back before the BK is filed.

I suppose the issue might be is "what is he supposed to do with the money?"
1. That depends on how much we are talking about.

[catleg]

A little known fact ( I believe, check with a lawyer ) is that there is a $5k "safe harbor" when filing an objection to a preference claim by a trustee. Also if he just takes cash out and hands it to you how would anybody know about it. He could just say he spent it on whatever, booze, cigarettes, lottery tickets.

[HHM]

A little known fact ( I believe, check with a lawyer ) is that there is a $5k "safe harbor" when filing an objection to a preference claim by a trustee. Also if he just takes cash out and hands it to you how would anybody know about it. He could just say he spent it on whatever, booze, cigarettes, lottery tickets.

You have only posted 4 times, and this post is pretty much full of crap.

If you are going to post info like a $5k safe harbor, you better have some support (but of course you dont because there is no such thing).

Keep in mind, the BK trustee can simply ask for the Bank Statements and ask the person under oath what they did with the money.

[bottomsup]

Thanks for your replies.

I have since done some reading and I learned about defenses to preferential payment. One of the defense would be "contemporaneous exchange".

Would this be considered contemporaneous exchange?

[catleg]

You have only posted 4 times, and this post is pretty much full of crap.

If you are going to post info like a $5k safe harbor, you better have some support (but of course you dont because there is no such thing).

Keep in mind, the BK trustee can simply ask for the Bank Statements and ask the person under oath what they did with the money.

Oh my, the hostility!

OK, I am a little wrong. The $5k safe harbor applies to business debts, not sure if this is one or not, again check with a lawyer, for consumer it is $599 which I think everyone here is aware of.

Nevertheless the OP also came up with the other safe harbor defense which is contemporaneous exchange. I'm not sure how that will work out, since you didn't actually exchange money for goods or services, which is I think what that is meant to cover.

What kind of money are we talking about here?

[bottomsup]

The amount is about $10K.

What if he paid me in cash? How can they trace this back to me?

[keepmine]

The amount is about $10K.

What if he paid me in cash? How can they trace this back to me?

If the trustee puts the screws to your friend, he'll give you up.

[Trixie007]

The amount is about $10K.

What if he paid me in cash? How can they trace this back to me?

As HHM stated, they can ask him under oath what he did with any money spent. Also, just by signing the BK paperwork, you are declaring everything in it to be complete and true -- even if no one later asks a specific question about a specific transaction...

[StartingOver08]

The debtor has a lot to lose by paying you before the filing. He could lose the right to have his debt discharged - instead it would be dismissed and he would be in a world of hurt. You would have to give the money to the Trustee and he would probably have a dismissed case on his hands. Lose-Lose.

If he agrees to pay you after his discharge with voluntary payments, then you get your payments and he gets everything discharged. Win-Win.

[Willy13]

If it's a preference I guess he could pay you and then wait a year to file. Not sure if there are other laws outside the BK insider preference rule that would apply to this. I'd be real interested to learn what they are if they exist.

[lrprn]

You didn't say which chapter of bankruptcy your friend intends to file.

If he's filing Ch 13 (and assuming this loan is in writing, is secured, to some asset of his and witnessed), then he lists you as a creditor when he files and then you file a claim. Then his trustee pays you back the $10K. If the loan isn't secured to an asset, then you would get back whatever % his other unsecured creditors are getting.

However, if he's filing Ch 7, then that's a different situation. See below for my suggestions about where you stand if he files Ch 7.

The amount is about $10K.

Since I assume your friend does not have the $10K in cash under his mattress or buried in the back yard, then that makes this amount discoverable when he pulls it out of whatever account it's in currently. He has to disclose all active bank accounts when he files bk.

Any trustee would come after this $10K payment to you as a preferential payment and demand it back in full. And you would have to give the whole $10K back too - that's the law. You'll be out the $10K and can't ever go back to get the money from your friend legally - it will have been discharged in his bankruptcy.

What if he paid me in cash? How can they trace this back to me?

See above comment about disclosing all active accounts when he files. The trustee has every right to ask for a full disclosure of any account where questionable activity (like a sudden drop of $10K) has taken place close to filing.

What state does your friend live in? In a few states, depending on what other secured assets he's trying to keep when he files, he could possibly protect the $10K with his state bankruptcy exemptions then pay you the $10K when his case is discharged and closed. Is he working with a bk lawyer to file?

[bottomsup]

What state does your friend live in?

He is in CA. I don't think he has hired an attorney at this time. He has consulted some friends who are BK lawyers.