QUESTION
Can friend be listed as a Secured Creditor, if loan proceeds came from Self Directed IRA and I pledged stocks as collateral? No UCC filing was done.
Asked on Sep 25th, 2012 on Bankruptcy - Georgia
More details to this question:
Over 5 years ago, a friend made a loan to me from his Self Directed IRA /401K, We had a promissory note drawn up, where I pledged stocks that I owned as collateral. The loan proceeds were wired to me directly from the Plan Administrator and repayments are made directly to Plan Admin. I did not do a UCC filing and did not physically turn over Stock Certificates to Plan Admin. I have since been impacted by economy, losing my home and will have to file Bankruptcy. I also want to honor my commitment to my friend. Can my friend be Secured Creditor, since we have an official promissory note with the pledged Stocks and the funds are from his Self Directed IRA/401K?
1 ANSWER
Antonio B. Mari
You can make the argument that he is a secured creditor. Clearly it is a better case had you followed the formalities, but it doesn't mean you could not make the argument. The problem becomes getting the bankruptcy trustee and all of the creditors to accept your conclusion. The bankruptcy laws do not like "insider" transactions. Any time you want to treat a friend or family member as a creditor, your going to have a hard time selling it to the court.
The best out come is to just include the debt and let it get discharged. Then post bankruptcy make payments to your friend on the "honor system". Just because a debt is discharged doesn't mean you can't go back and voluntarily pay the debt. Once you are post discharge, the Court will not care.
Answered on Oct 01st, 2012 at 10:42 AM