Would this be considered preferential payment?

[socksornosocks]

From NY. Here is my situation. I just filed for chapter 7, my expenses far exceed my income and I got to a point where I really had no choice. I have been making my payments to ALL creditors that will be involved in the bankruptcy and was completely up to date and current up until the filing which happened earlier this week.

I have an uncle that gave me a personal loan a little while back and I pay him $500/mo for 36 months (we do have a written contract that we did with rocket lawyer including amortization schedule etc) I forget how long in we are in but it's been over a year already (maybe 13/14 months). The only people that know about the loan is us and I did disclose it to my bankruptcy attorney (I am not sure if my attorney put it on the filing but I will know on Tuesday and if he hasn't I will disclose it to be sure I have everything above board)

When I filed for chapter 7 as I mentioned I was current with ALL debtors and paid all on time with the exact agreed upon amounts including my uncles loan. (Mostly credit cards and 2 other unsecured loans)

Can the last year payments of $500 to him still be considered giving preference since I was up to date and paying everyone exactly what I was supposed to? I never intended to file bankruptcy and intended to pay everything but between losing my job and things piling up I just hit a point where I had no choice) Lookin forward to your thoughts.

Thanks for the help in advance.

 

[Just Blue]

From NY. Here is my situation. I just filed for chapter 7, my expenses far exceed my income and I got to a point where I really had no choice. I have been making my payments to ALL creditors that will be involved in the bankruptcy and was completely up to date and current up until the filing which happened earlier this week.

I have an uncle that gave me a personal loan a little while back and I pay him $500/mo for 36 months (we do have a written contract that we did with rocket lawyer including amortization schedule etc) I forget how long in we are in but it's been over a year already (maybe 13/14 months). The only people that know about the loan is us and I did disclose it to my bankruptcy attorney (I am not sure if my attorney put it on the filing but I will know on Tuesday and if he hasn't I will disclose it to be sure I have everything above board)

When I filed for chapter 7 as I mentioned I was current with ALL debtors and paid all on time with the exact agreed upon amounts including my uncles loan. (Mostly credit cards and 2 other unsecured loans)

Can the last year payments of $500 to him still be considered giving preference since I was up to date and paying everyone exactly what I was supposed to? I never intended to file bankruptcy and intended to pay everything but between losing my job and things piling up I just hit a point where I had no choice) Lookin forward to your thoughts.

Thanks for the help in advance.

You should ask your BK attorney.

 

[socksornosocks]

You should ask your BK attorney.

That will be happening Tuesday but it's a long holiday weekend and I'm interested in an experienced point of view in the meantime

 

[justalayman]

From my poor understanding of Bk law, yes, it would be considered to be preferential.

The issue isn’t whether you were up to date. It’s simply that he is considered an insider and payments to insiders are considered to be preferential.

It’s up to the trustee as to how they handle it though.

 

[socksornosocks]

From my poor understanding of Bk law, yes, it would be considered to be preferential.

The issue isn’t whether you were up to date. It’s simply that he is considered an insider and payments to insiders are considered to be preferential.

It’s up to the trustee as to how they handle it though.

I understand the idea behind the law but what makes him different than say the credit union I have in the bankruptcy that I pay $600/mo. Or would they be considered preferential for the past 3 months also?

 

[justalayman]

I understand the idea behind the law but what makes him different than say the credit union I have in the bankruptcy that I pay $600/mo. Or would they be considered preferential for the past 3 months also?

He is a relative. That alone makes him an “insider” and all payments to insiders for the year prior to filing bankruptcy are considered to be preferential.

 

[socksornosocks]

He is a relative. That alone makes him an “insider” and all payments to insiders for the year prior to filing bankruptcy are considered to be preferential.

Well that stinks. Almost makes me want to reconsider the bankruptcy just on that alone. I dont want to mess up the relationship at all. Any chance the trustee just forgets to look? Lol

 

[justalayman]

Well that stinks. Almost makes me want to reconsider the bankruptcy just on that alone. I dont want to mess up the relationship at all. Any chance the trustee just forgets to look? Lol

Probably not but you can pay your uncle whatever you want to pay him after the Bk is closed.

 

[socksornosocks]

Probably not but you can pay your uncle whatever you want to pay him after the Bk is closed.

Looks like that will be 6k on top of what the balance is now

 

[justalayman]

Looks like that will be 6k on top of what the balance is now

You sound like an honorable guy.

But before you add to the balance, wait to see what the trustee does.

 

[socksornosocks]

You sound like an honorable guy.

But before you add to the balance, wait to see what the trustee does.

Do you know when my uncle would be notified? After the hearing I'm assuming? I need to prepare for this convo I'm gonna have with him

 

[justalayman]

Do you know when my uncle would be notified? After the hearing I'm assuming? I need to prepare for this convo I'm gonna have with him

I wouldn’t wait very long to alert him to the activity. I found one site that stated your 341 meeting of creditors would be between 21 and 40 days after you file, and that’s the actual meeting. They will receive notice prior to the meeting.

 

[despritfreya]

@socksornosocks

The payments to your Uncle must be disclosed on question 7 of the Statement of Financial Affairs. As was pointed out above, the payments made to him over the past year at the rate of $500/mo are deemed preferential. The Trustee has the right to seek the recovery of $6,000.00. There are defenses to the Trustee's attempt to recover the preference, and payments in the ordinary course is one of them. See 11 U.S.C. 547(c)(2). However, the defense, if it applies to your Uncle, is his defense, not yours.

Your Trustee understands the family relationship. He/she is most likely going to ask if you want to make arrangements to reimburse the bankruptcy estate instead of the Trustee going after your Uncle. A Chapter 7 Trustee will probably agree to take payments over a relatively short period of time (probably not more than 8 or so months). Discuss this with your attny. You will work it out with the Trustee.

Des.

 

[socksornosocks]

@socksornosocks

The payments to your Uncle must be disclosed on question 7 of the Statement of Financial Affairs. As was pointed out above, the payments made to him over the past year at the rate of $500/mo are deemed preferential. The Trustee has the right to seek the recovery of $6,000.00. There are defenses to the Trustee's attempt to recover the preference, and payments in the ordinary course is one of them. See 11 U.S.C. 547(c)(2). However, the defense, if it applies to your Uncle, is his defense, not yours.

Your Trustee understands the family relationship. He/she is most likely going to ask if you want to make arrangements to reimburse the bankruptcy estate instead of the Trustee going after your Uncle. A Chapter 7 Trustee will probably agree to take payments over a relatively short period of time (probably not more than 8 or so months). Discuss this with your attny. You will work it out with the Trustee.

Des.

Des,

This was great info. The last thing I want to do is have my uncle get stuck with a bill like that and ruin the relationship. I would rather do whatever it takes to pay that back to the court/trustee myself somehow someway. Say he is currently 25% of my total debt (all are unsecured either credit card or unsecured loan so I think they all fall under the same category in the order of payments). Would it be only 75% that the trustee would be going after (since 25% would have gone to him) or do they not care and take the whole 100% anyway?

Also complete longshot but this isnt the first loan I have taken with him, I did one 6 years ago, paid only for 3 years, paid it off in full, and then this loan was taken with him as well after the first one was paid off. I think I know the answer but does this have any potential to fall under any kind of exception due to the length of business relationship? I have tried to do my research but everything I am finding under the avoidance defenses seem to apply specifically to businesses.

Again all stuff I will be discussing with my lawyer this week but the holiday weekend has my brain spinning.

 

[justalayman]

The right to avoid the payments applies to preferential creditor payments. Payments to an insider are preferential payments. The definition of insider




https://www.law.cornell.edu/uscode/text/11/101

31)The term “insider” includes—
(A)if the debtor is an individual—
(i)
relative of the debtor or of a general partner of the debtor;
(ii)
partnership in which the debtor is a general partner;
(iii)
general partner of the debtor; or
(iv)
corporation of which the debtor is a director, officer, or person in control;
(B)if the debtor is a corporation—
(i)
director of the debtor;
(ii)
officer of the debtor;
(iii)
person in control of the debtor;
(iv)
partnership in which the debtor is a general partner;
(v)
general partner of the debtor; or
(vi)
relative of a general partner, director, officer, or person in control of the debtor;
(C)if the debtor is a partnership—
(i)
general partner in the debtor;
(ii)
relative of a general partner in, general partner of, or person in control of the debtor;
(iii)
partnership in which the debtor is a general partner;
(iv)
general partner of the debtor; or
(v)
person in control of the debtor;
(D)
if the debtor is a municipality, elected official of the debtor or relative of an elected official of the debtor;
(E)
affiliate, or insider of an affiliate as if such affiliate were the debtor; and
(F)
managing agent of the debtor.

the very first definition states: if the debtor is an individual, then under that; relative of the debtor