QUESTION
Could my brother have paid the money to my father without these issues?
Asked on Jun 16th, 2012 on Bankruptcy - Indiana
More details to this question:
In February my brother informed my father he could not pay him back the money he borrowed, ($3000), because he was going to have to file chapter 7 personal bankruptcy, and even though he had the money to pay him back, he claimed his lawyer told him the creditors would come after my father if sent him the money. Is this true? My brother did not file bankruptcy until the end of May. Couldn't he have paid the money to my father without problems?
16 ANSWERS
Bankruptcy Law Attorney serving Austin, TX
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Law Office of Susan G. Taylor
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No, it would have been a preferential payment to 1 unsecured creditor over others that could have been recouped by the ch. 7 trustee.
Answered on Jul 05th, 2012 at 6:23 PM
Burton J. Green
The trustee has the right to recover moneys paid to insiders, such as family members, if paid within 1 year of filing the bankruptcy. Such a payment is considered a "preferential payment" subject to recovery. The trustee could sue your father to recover the money. The attorney gave your brother good advice. However, your brother can still pay back your father after bankruptcy if he wants.
Answered on Jul 03rd, 2012 at 12:07 PM
In a bankruptcy you are always asked if you have paid back any money to family or close friends within the last 2 years. This is because your family needs to be looked at as a creditor also. And you as a debtor cannot choose who you want to pay back and who you don't, meaning you can't decide to discharge your credit card debt and still pay dad. The attorney is correct, if he paid back the $3,000 to your dad prior to his filing then the trustee likely would have gone after your dad to get the money back from him.
Answered on Jul 02nd, 2012 at 3:28 PM
Criminal Law Attorney serving Fremont, CA
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Steven J. Alpers, A Professional Corporation
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Your brother is correct. A payment to a family member can be set aside and your father could be required to pay the money back to the trustee.
Answered on Jun 30th, 2012 at 12:20 AM
No. The lawyer's advice was spot on.
Answered on Jun 29th, 2012 at 8:39 PM
Bankruptcy Attorney serving Concord, CA
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William Rubendall Attorney at Law
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Payments to family members, friends or insiders within one year of filing will be recovered by the trustee for creditors.
Answered on Jun 29th, 2012 at 6:27 PM
Bankruptcy Attorney serving Phoenix, AZ
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Law Office of D. L. Drain, P.A.
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No. Your brother can pay your father back after bankruptcy.
Answered on Jun 29th, 2012 at 5:01 PM
No. Paying your Dad would have been a problem.
Answered on Jun 29th, 2012 at 4:26 PM
Bankruptcy Attorney serving Grand Rapids, MI
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David Andersen & Associates, PC
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Your brother provided you correct information. The trustee (who represents the creditors in a bankruptcy) can sue creditors for return of preferences. Preferences occur where the debtor (the person filing the CH7) pays one creditor over another. Your father if paid would have been preferred over your brother's other creditors in the fact pattern you presented. You might ask how long do they go back for preferences. For those deemed insider (relatives), the period is 1-year. If your brother paid the $3,000 to Dad then Dad would be sued by the trustee and would have to return the money. On a related note, your brother can choose to pay your dad post-bankruptcy if he chooses to.
Answered on Jun 29th, 2012 at 4:25 PM
Criminal Defense Attorney serving Deltona, FL
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R. Jason de Groot, P.A.
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It is true that the trustee could come after your father if your brother had paid him. It would have been called a preferential transfer. He could not have paid your father without problems.
Answered on Jun 29th, 2012 at 4:14 PM
Bankruptcy Chapter 7 Attorney serving Fort Collins, CO
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The Salas Law Firm LLC
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No, your brother he could not have paid your father. Your brother is not allowed to pay any money to any friend or family member within 1 year of filing Bankruptcy. The Attorney was correct, if your brother had paid your father the Trustee in the case would have sued your father for the money as it was a preferential payment to an insider. The Trustee would have won the suit and your Father would be on the hook for the $3,000. There is nothing barring your brother from paying your father now, but because of the bankruptcy he is no longer legally liable to any pre-petition creditor. Be easy on your brother, I'm sure he is trying to do the right thing.
Answered on Jun 29th, 2012 at 4:10 PM
Bankruptcy & Debt Attorney serving Syracuse, NY
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Theodore Lyons Araujo
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Your brother is correct. If he keeps the money until after he files the bankruptcy then he could protect the money in his possession with the application of an exemption. If he paid Dad back in the year before he filed bankruptcy Dad would have to surrender the money to the Bankruptcy Trustee. Your brother can pay Dad back the day after he files bankruptcy and the funds are protected.
Answered on Jun 29th, 2012 at 4:07 PM
Bankruptcy Attorney serving Houston, TX
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Pamela L. Stewart, Attorney at Law
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No. Payments to insiders made within one year of filing a bankruptcy petition can be treated as a preference payment. Your father would be considered an insider. The Trustee could ask for the return of the money from your father and then distribute it to your brother's creditors. Your brother's attorney gave him good advice regarding this issue.
Answered on Jun 29th, 2012 at 4:05 PM
Daniel James Wilson
Your brother's lawyer was correct. The trustee could have recovered the loan repayment as a preferential transfer to a family member.
Answered on Jun 29th, 2012 at 12:33 PM
Appellate Attorney serving Grosse Pointe Farms, MI
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Musilli Brennan Associates, PLLC
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There is a "preference" issue, especially as between related parties and your brother and his attorneys are being cautious. I need more information to form a firm opinion but this does not appear to be out of line.
Answered on Jun 29th, 2012 at 12:31 PM
That's an unfortunate situation, but it's absolutely correct. In fact, your father should be happy that he did not pay him back that money, because when a debtor files for bankruptcy relief, the appointed bankruptcy Trustee can recover funds from certain creditors and when the payment is to a relative or what is known as an "insider," the Trustee can recover those funds if, among other things, the payment was made within a year of filing the bankruptcy. So, if your brother filed bankruptcy in May 2012, the Trustee could have sued your father for that money if he was paid within the previous year.
Answered on Jun 22nd, 2012 at 2:23 PM