MAJOR hiccup re: transfer of stocks

[pinkpeanut01]

We met with the attorney today to sign finalized copies of everything to file for Ch 7 next week, but he had a clarifying question re: the transfer of stocks in 2008 that we mentioned on a form as a footnote. We explained that my husband was given stocks as a "gift" as a child, and he was listed as the owner on a custodial account. The reason I say "gift," is because it wasn't really. The stocks were under my husband's (then a minor) SS#, but the grandparents collected, and continue to collect apparently, all dividend checks to live off of. In 2008, to avoid any potential IRS nightmares and after much complaining on our part because these things were starting to screw up our tax returns, these "gifts" were transferred out of his SS# and to another family member's. We were free and clear of this account from which we never ever benefited. It was just an arrangement, we think, for the grandparents to hide assets from Uncle Sam.

Fast forward to today, and the attorney informs us that the lookback period for transfers is four years. So if this is a significant amount of money, it could be seized by the trustee. We had no idea what the value of the stocks were, only the annual dividends, and never put much thought into it until today. Well, we found out it was $100,000 worth of stocks. My jaw dropped. My husband had an account in his SS# worth $100K. Bankruptcy certainly wouldn't be in our future if we actually had access to that money! Anyway, now our attorney is telling us it is waaay to big of a risk to file right now, and we need to wait to put four years between the transfer of those stocks and filing, or the UST will be coming after that money even though we never touched it.

I'm not really sure what my question is. I guess, any insight? Anybody ever hear of a 4-year lookback instead of 2-year, which is what I thought it was? This ridiculous arrangement of stocks is totally screwing us now, even though we never saw a penny of that money. Help?? Do we REALLY have to wait until May 2012 now to file??? I just wanted this over with.

[justbroke]

When it's an insider, such as family, it may be considered a fraudulent transfer. Normally, fraudulent transfer is a 2-year lookback. However, under the Uniform Fraudulent Transfer Act (UFTA), in which 25 States have enacted, it is a 4-year lookback. Unfortunately, Pennsylvania adopted the UFTA back in 1994 (12 Pa. C.S.A. §§5101 - 5119). So the lookback could be 4-years if your transfer falls under the UFTA.

Otherwise, the Trustee could undo the transfer and recover the asset, for distribution to your creditors, from your parents.

[despritfreya]

My advice.. . . Wait until 2 years and at least 1 day after the date of transfer and then file a 3 year minimal payment Chapter 13 (assuming you are within the allowed debt limits).

1. Question 10 of the Statement of Financial Affairs only requires you to disclose transfers that happened within 2 years prior to filing.
2. A Chapter 13 Trustee is not likely to look beyond the 2 year disclosure as a Chapter 13 Trustee's job is not to find and liquidate assets. His job is to collect the monthly payment and disburse those funds to the creditors.
3. Assuming you are below median income your commitment period in a Chapter13 is 36 months (3 years). You can elect to go longer - up to 60 months - if you need to.
4. I have seen Plan payments (based upon Schedule I & J) as low as $75.00 per month. I would think paying $2,700.00 over 3 years is well worth it. Of course, your Plan payment may be higher, depending upon your ability to pay and will most likely have to include any secured debt (car) you want to keep as well as any added legal fees and the Trustee’s fee but I think you get the picture.
5. If things look like they could get bad (Chapter 13 Trustee starts to investigate but does not yet know what happened) before it gets out of hand you can dismiss the case - something you cannot do if you file a Chapter 7.

Discuss this option with your attorney.

Des.

[AngelinaCatHub]

I would never over question JB or Des, but I have a theory: How was this stock to be handled, for you or the benefit of the Gparents? It sounds like you got screwed. Unless the question of fraud would come up, could it behoove you to go 7 and let the Trustee seize it and pay100%, and he then would have to return the residual to you. You could make out. Just a rolling thought. 'Hub

[justbroke]

I had the same though 'Hub. Just let the Trustee take it, since it's not benefiting the debtor anyway. However, it's family and when family gets involved... all bets are off. It is unlikely that a debtor would want to disrupt one of the grandparents sources of income.

[AngelinaCatHub]

I had the same though 'Hub. Just let the Trustee take it, since it's not benefiting the debtor anyway. However, it's family and when family gets involved... all bets are off. It is unlikely that a debtor would want to disrupt one of the grandparents sources of income.

I would concur if that is a fact. However if any of them would pull off a bad deal such as take a savings intended for another, all bets off on that one too. In many cases, family can be far worse than strangers. (ie during or after a funeral for 'stuff'.)

Working for a Cash Register Company, I can not tell you how many calls I made for wrong addition (that didn't exist) when family ran a small store and all used the same register. 'Hub

[pinkpeanut01]

As always, WONDERFUL advice, and I'm very glad I posted the question.

Ch 13 was not an option we considered, but is a GREAT one. I would proceed as an individual filing Ch 7 and husband does Ch 13? Is that "allowed"? I'm a homemaker (student, actually) and have no income, so I definitely qualify for Ch 7. But can a spouse do 13? The CC we used to live off when he was unemployed (which started this mess) is under my name only, and it's the biggie. We could definitely afford a Ch 13 for what is listed under his name, if it would be approved. I will definitely raise this option with our attorney.

And 'Hub, you nailed it: we got screwed. I could write a novel about how criminal this whole thing sounds to me. DH was almost disowned from his family when we got married and I dared to question these dividends that Grandma and Grandpa live off of, yet were under my husband's social. DH would have to claim them on his tax returns as income, even though he never got a dime of it, just so WE don't get strangled by the IRS. And he has a sibling and 9 cousins who also received these "gifts" that the G-parents live off of. So it's a LOT of money floating around. We could easily file tomorrow, let the trustee take it, and WOW - then we get the rest that's leftover? That would be WONDERFUL. But it would also cause our own personal WWIII. And just from a moral point of view, I'm not sure I could do that to 80-year olds who are in failing health.

Our thoughts this morning after sleeping on it are for me to file now, since I was never associated with the stocks, and let DH wait it out until 4 years have passed. But that's very risky IMO b/c that won't happen until May 2012, and we've already not been paying the banks since Jul 2011, anticipating we were filing, like, yesterday. It just blew us out of the water yesterday when we found out the value of these things. Anyway, we thought that if DH gets sued before the 4 years have officially passed, then we're just going to have to tell Grandma what's going on. Then the ball is in her court - she either risks losing the money or she can help us pay off the debts (probably via settlement at that point since so much time will have elapsed). We never set out trying to get them or would expect them to pay off our own trouble, but if it comes down to losing the money, she might just make it "go away" for us. It almost sounds like blackmail, but I swear it's not. We just need to get our fresh start already, and this is a big thing holding us up. We'll just let her understand the risks that are facing her funds.

Does anyone know - will the amount the trustee can seize be its value at the time of the transfer, or the current value of the account? In this economy, I don't know how they did it, but we found out yesterday afternoon that what was valued at $100K in 2008 is now valued at about $200K.

Again, great advice, I really appreciate it. Will talk to the attorney today.

[justbroke]

It's the value at time of transfer. Of course, there would be an estimate of value prior to actually executing a sale of the stock, but the Trustee would find out the actual sale price once sold. The problem really isn't your problem. The problem would be that the Trustee sues the grandparents for the stock. The Trustee would then need to sell it and pay the 15% long term capital gains tax, any broker fees, as well as the Trustee's commission.

How much is your unsecured debt?

[pinkpeanut01]

Mine is $45K. DH's is about $30K.

Basically, if we hold off and further risk our own fresh start, we're doing it to "save" Grandma. It's just a matter of do we protect Grandma or don't we, right? If the money's going to be "lost" to creditors, we'd almost be better off just telling her upfront what's going on (she has no idea we're insolvent), and have her pay off our debts to avoid bankruptcy, right?

[pinkpeanut01]

In case anyone was interested, we decided to make this Grandma's problem, and not ours. We're filing now. This is a lot of money, but it's not going to make the g'parents live in poverty (they have a LOT more, well into the 7 figures), and we're not putting our lives on hold until next summer over it, and likely being sued by our creditors before then. We need to get on with our lives already, so if Grandma wants to fight this, let her pay her own lawyer.

[ValleYum]

Good luck to you!!!

[justbroke]

I concur with the decision. They placed you in a bad place and you have certainly considered all options. I believe you are taking the better option. Hey, the Trustee may not even care! You just never know!

[AbbeyA]

In case anyone was interested, we decided to make this Grandma's problem, and not ours. We're filing now. This is a lot of money, but it's not going to make the g'parents live in poverty (they have a LOT more, well into the 7 figures), and we're not putting our lives on hold until next summer over it, and likely being sued by our creditors before then. We need to get on with our lives already, so if Grandma wants to fight this, let her pay her own lawyer.

I hope all goes smoothly for you! I'd love for you to update the thread and let us know how it's going as the process plays out. Did you tell Grandma that you are filing or are you going to wait to see if it becomes an issue with the trustee? What did your attorney say about your tax returns and the "false" income on it? Is there any possible trouble for your dh from this?

[pinkpeanut01]

I will definitely update the thread. We're meeting with the attorney in about a week and a half to sign all the final documents. Since the investments don't involve me at all, I left it totally up to my husband. He decided he's not going to tell Grandma unless/until it becomes an issue. Our attorney said there's still a chance the trustee won't say or do anything, but if he does, since apparently we'll have a bullish trustee, then let Grandma fight it if she wants to. The plus for us, if you can call it that, is that if the trustee recovers the funds, they'll only be distributed amongst my husband's unsecured creditors or those we owned jointly. So if my husband wanted to "return" the leftover funds to Grandma, he could. Or maybe the trustee will only recover enough funds to pay off said debts. That remains to be seen. But the attorney says this is just Grandma's problem, not ours, and it shouldn't affect us at all. He did warn to be prepared for a family feud, though. The only thing he said about the income's tax is that since my husband claimed it on his tax returns as the rightful owner, and paid the taxes on it as a reduction in his tax refund, then we're not at fault for anything. Taxes were paid by the rightful owner. The grandparents just received the dividend checks as a gift, but in an amount that falls below the gift threshold for taxes. I hope it's all as easy as this sounds. Maybe we're in for a bumpy ride. But it feels better to be doing something than idly sitting by and letting the phone ring.

[pinkpeanut01]

I thought I would stop by and update this thread. After my last post, just above this one, we had another meeting with the attorney who convinced us my husband should not file right then. I can't speak much to our frame of mind or emotions at that point since it was a year and a half ago already, and with our 20/20 hindsight we most definitely would have not made the same decisions, but I ended up filing solo. A year later, DH hired his own attorney and filed solo as well. We found a cheaper attorney for him to use since we had my own experience and documents to draw from. We almost had him file pro se but decided that creditors seeing an attorney on the paperwork would make it an easier case than pro se. (The attorney was worthless in the end.) All that to say that we both had seamless BKs and discharges. Everyone is happy. We are not on speaking terms with his mother, partly because of the above-mentioned scenario and partly for other reasons, but we both got our fresh starts, and that is priceless.