paying the trustee

[frustrated7]

Our case is a bit complicated. We are waiting right now for our income to drop enough for a Chapter 7, hopefully we can file in April, we barely missed it for this month. Last fall, my parents loaned us money to pay our property taxes and then we paid them back in December. This was all done in checks, so it is obvious on our account statements. There is no way we can wait until January of next year to file; we have to file as soon as we can (hopefully April). My attorney wants to argue some fancy mumbo-jumbo so the trustee does not go after this money, but his fellow attorneys told him he can argue all he wants but he won't win and the trustee will want that money back. The attorney did say we might be able to work out something with the trustee where we pay her the money so she doesn't go after my parents. The thing is that we won't have that money right away and it will take time to come up with that much money ($2,000). Does anyone know how this works or how far spread out the payments could be? Would this keep our case from being discharged until we had paid it back? What a huge mess this whole thing has turned into. Thanks for anyone who knows the answers.

[justbroke]

Yes... paying one creditor over another is tough. However, I side with your lawyer!

Here's why. Certain debts are non-dischargeable. Guess what... property taxes are non-dischargeable. The property tax holder (county, city, state) would have received the amount anyway. That transfer of money did not prevent an unsecured creditor from receiving any less money than they would have under Bankruptcy.

So, the argument is, that the unsecured creditor is in no worse position than they would have been, had it not been paid.

I, personally, as a non-lawyer, really don't see an issue at all! I think you could win regardless of insider or any other preferential status... because it was property tax. However, it will (more than likely) be litigated, and the Trustee will complain.

[frustrated7]

The problem is that I borrowed the money from my parents to pay the property taxes and then I paid my parents back. The attorney is going to try to argue some fancy mumbo-jumbo, but his fellow attorneys tell him he won't be successful and either we will have to pay that money to the trustee or the trustee will go after my parents to get that money back. Had I known this would end up happening, I would have just been late on my property taxes and paid it in December!

[HHM]

Sorry to say, your attorney will most likely lose that argument 9 ways to Sunday.

[justbroke]

The problem is that I borrowed the money from my parents to pay the property taxes and then I paid my parents back. The attorney is going to try to argue some fancy mumbo-jumbo, but his fellow attorneys tell him he won't be successful and either we will have to pay that money to the trustee or the trustee will go after my parents to get that money back. Had I known this would end up happening, I would have just been late on my property taxes and paid it in December!

I read all that earlier, and my answer remains the same.

While it may be considered preferential (to which the Trustee will automatically object), it is to a secured creditor, and they did not cause any other (unsecured) creditor to get less than they would had you liquidated.

As for an insider preference, this is the questionable area. Insider payments are the tough part. I think that because it's for an otherwise non-dischargeable debt (property taxes), there was really no preference.

I, for one, believe that this is no different than trying to discharge a credit card that you used to pay property taxes!!! You just can't (unless no one is paying attention). That is because that debt is not dischargeable, and paying on a non-dischargeable debt, is not a preference.

But that's just me. Let us know how this goes!!!

(There is caselaw to suggest that I'm wrong. Howeer, it seems wrong that the Trustee would take the money, then give it right back, as the Taxes would be a higher priority than the unsecuerd debt.)