Preference payment

[kelbs]

I received a letter from an attorney stating that we must return a payment received during the preference period in a 2007 Chapter 7. I have a couple of questions:

1. The Bankruptcy filed was an individual bankruptcy, we sold an LLC while it was still active. Although the LLC is now dissolved, the bulk of the sale happened while it was still active. Does the sole-member of an LLC filing personal chapter 7, cover the debts of the LLC? Doesn't the LLC also have to file bk? The LLC did not file.

2. The payment we received in 2007 was for $3100, yet the attorney is demanding payment of well over $9000. Any thoughts as to why?

Thank you,

Kelby

[lrprn]

You are describing a complicated Ch 7 consumer bankruptcy with business dealings involved. If I were you, I would quickly set up 2-3 appointments with experienced bk lawyers in your area. This is not something you want to fight without excellent bankruptcy legal advice of your own protecting your interests.

Was the Ch 7 case filed in your state or in another state?

[kelbs]

The case was filed out of state.

[StartingOver08]

If the LLC is a single member LLC, then the LLC is an asset of the debtor and the debtor can discharge his personal liablity for the business debt with a personal Ch 7. No, the LLC does not have to file. Sometimes they do file, but more often the LLC's do not file and they simply close. Check out the questions in the Small Business section of this forum.

I am not sure why the Trustee is now asking for over $9000 for a $3100 preferencial payment. Could it include attorney fees, interest, penalties and the original $3100?

I am not an attorney, but maybe one of the others can elaborate.

[BigJohn]

If I understand the situation properly, you sold some assets of a LLC and then sold the LLC to a person for $3100 and that person filed bankruptcy, is this correct?

The other pserson's lawyer wants you to return the $3100 plus about $6000 more because the other person paid you knowing full well they were going to file bankruptcy, is that correct?

Why is the lawyer contacting you instead of the Trustee?

I would ask for a breakdown of the $6000 extra that is attached to the bill. What is that for?


When did the person buy the LLC?
When did the person file Chapter 7?
Did the person get confirmed?
Did the person get discharged?

[kelbs]

Thanks for the reply, Big John.

We are a wholesale company that sold merchandise at wholesale to an LLC. The sale was made on Net 30 terms and paid about 30 days late, but within the preference period.

The sole member of the LLC filed individual BK with no mention of the LLC on the paperwork. We were not listed as a creditor, becuase we had been paid, so I have not been kept up-to-date on the happenings of the case. I would assume that a discharge was granted.

The demand for return of the payment we received is from the Trustee, not the Debtor's attorney.

Our position is basically that we sold to an active LLC and not an individual, and are therefore entitled to keep the payment. I am finding out, though, that this may not be a legal defense to preferential payment.

Thanks,

Kelby

[fltoo]

Since it is only 30 days late, you might be able to claim contemporaneous exchange. Sounds like you have a good case of keeping the payment.
There are plenty of examples on the net if you google this topic. Trustee sounds like he is fishing here.

[StartingOver08]

Sounds like you have an affirmative defense: contemporaneous exchange

Here's a case that may work for you regarding that: http://www.arb.uscourts.gov/orders-r...ixon/riley.pdf

Natually there are other defenses as well. JMO, I'm not an attorney, but its worth checking out.

[PoorGrammyinBK7]

I don't understand how the trustee could ask you for $6,000 extra.

[bkadvisor]

Thanks for the reply, Big John.

We are a wholesale company that sold merchandise at wholesale to an LLC. The sale was made on Net 30 terms and paid about 30 days late, but within the preference period.

The sole member of the LLC filed individual BK with no mention of the LLC on the paperwork. We were not listed as a creditor, becuase we had been paid, so I have not been kept up-to-date on the happenings of the case. I would assume that a discharge was granted.

The demand for return of the payment we received is from the Trustee, not the Debtor's attorney.

Our position is basically that we sold to an active LLC and not an individual, and are therefore entitled to keep the payment. I am finding out, though, that this may not be a legal defense to preferential payment.

Thanks,

Kelby

You are correct that your abovementioned defense is not an available preference defense.

Your wisest course of action would be to retain a creditor's rights bk atty. You have the Demand Letter. A competent atty could negotiate a settlement for you that would be the best cost/benefit given the amount involved. Trust me, you do not want to get in a pithing match with the bk trustee while your legal fees are mounting by the quarter hour. Remember trustees are on a fixed salary.

[BigJohn]

Thanks for the reply, Big John.

We are a wholesale company that sold merchandise at wholesale to an LLC. The sale was made on Net 30 terms and paid about 30 days late, but within the preference period.

The sole member of the LLC filed individual BK with no mention of the LLC on the paperwork. We were not listed as a creditor, becuase we had been paid, so I have not been kept up-to-date on the happenings of the case. I would assume that a discharge was granted.

The demand for return of the payment we received is from the Trustee, not the Debtor's attorney.

Our position is basically that we sold to an active LLC and not an individual, and are therefore entitled to keep the payment. I am finding out, though, that this may not be a legal defense to preferential payment.

Thanks,

Kelby

You sold on a NET 30. This means you were a creditor. The LLC company was late by 30 days. The LLC was indebted to your business. I can see where the Trustee looked at this as a preferential payment. My question is what is the extra charge for?

I don't think this would have been a problem if you hadn't extended credit terms. If you made the sale COD, I think the sale would have been okay.

I paid for merchandise for our business prior to filing and there has been no objections by the Trustee for those purchases because they were COD payments.