QUESTION
In chapter 7 does the court go after personal loans that were paid back prior to filing?
Asked on Jun 12th, 2012 on Bankruptcy - Michigan
More details to this question:
In February my brother told my father he could not pay back the $3000 he owed him, even though he had the money, because he was going to file chapter 7 bankruptcy and his attorney told him the court would come after my father for the money. Is this true?
14 ANSWERS
Burton J. Green
If he repaid your father within 2 years of filing bk, then the trustee can demand your father turn over the money to him. If your father refuses, the trustee can file a suit against him to recover the money.
Answered on Jun 25th, 2012 at 5:13 PM
Bankruptcy Attorney serving Jacksonville, FL
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Robert L. Peters, Attorney
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This is true. This situation is commonly referred to as a preferential payment to an insider. The funds that were paid back to the family member could have been distributed amongst all of the debtors creditors in a chapter 7 bankruptcy case. The trustee could have filed suit against your father to get the money back if your brother paid him back prior to his bankruptcy filing.
Answered on Jun 22nd, 2012 at 12:01 PM
Yes, it is true. A payment to your father would be a "preference" which the Trustee can go back one year to recover.
Answered on Jun 21st, 2012 at 4:07 PM
Criminal Defense Attorney serving Deltona, FL
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R. Jason de Groot, P.A.
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The Trustee in a Chapter 7 Bankruptcy has the duty to recapture moneys that were paid to a creditor which should have been paid to a number of creditors. You cannot exclusively pay one creditor and ignore the others before you file bankruptcy. That is called preferential treatment and it is frowned upon. Yes, that is true that the Trustee could come after your father for the money paid to him which should have been paid pro rata to creditors. This is just one reason people need experienced bankruptcy attorneys.
Answered on Jun 21st, 2012 at 11:04 AM
Absolutely true. In the year prior to one filing bankruptcy, any loans paid to family members and other "insiders" can be pursued by the bankruptcy Trustee. In the case you describe, if your brother paid your father $3,000 and then filed bankruptcy, the bankruptcy Trustee would sue your father for that money.
Answered on Jun 21st, 2012 at 10:39 AM
Chapter 7 Bankruptcy Attorney serving Milwaukee, WI
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Law Offices of Deborah A. Stencel
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Yes, it is true. To pay back your father in advance of filing bankruptcy would be a preference payment the Chapter 7 trustee could undo in the process of the bankruptcy proceeding.
Answered on Jun 21st, 2012 at 10:36 AM
Bankruptcy Attorney serving Washington, DC
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Law Offices of Diann C. Moseley
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Yes. First, your father is an unsecured creditor and is no different from any other unsecured creditor. Second, the father is viewed as an insider. As an insider, the debtor is required to list all payments made to an insider within one yearimmediately preceding the commencement of the case. This requirement prevents a debtor from favoring or colluding with an insider creditor. In your example, your brother wants to pay his father but does not plan to pay other creditors. Why? Because the father is family and thus your brother wants to favor him over other creditors. You cannot do that. A debtor cannot favor one unsecured creditor over another. Suppose there was no insider rule and a debtor, not your brother, has a substantial amount of money in the bank and wants to prevent it from being seized by the bankruptcy trustee. He could give the money to his father and claim that he paid back a loan. Without the insider disclosure rule, the father could return the money to the debtor after the bankruptcy is finished. The insider rule allows the bankruptcy trustee to examine loan payments to an insider creditor to prevent the debtor from favoring or colluding with an insider creditor.
Answered on Jun 21st, 2012 at 9:31 AM
Bankruptcy Attorney serving Phoenix, AZ
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Law Office of D. L. Drain, P.A.
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For that amount - most likely. But, nothing stops your brother from voluntarily paying him back after the bankruptcy is filed. That assumes he is filing a chapter 7.
Answered on Jun 21st, 2012 at 9:27 AM
Immigration Attorney serving Arlington, TX
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Law Office of Pho Ethan Tran, PLLC
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Payments made to insiders, such as relatives, within one year prior to filing for bankruptcy can be recovered by the trustee and distributed to all the creditors.
Answered on Jun 20th, 2012 at 9:34 PM
Bankruptcy Attorney serving Concord, CA
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William Rubendall Attorney at Law
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A bankruptcy trustee will be allowed to recover payments made to loans to family, friends or insiders who have knowledge of the financial situation of the debtor.
Answered on Jun 20th, 2012 at 9:18 PM
Appellate Practice Attorney serving Cheyenne, WY
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Lynn Boak Attorney at Law
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If your brother paid a loan back to your father within a few months of filing bankruptcy, it could be considered a fraudulent transfer unless your brother could show a note or similar documentation that it was a business transaction .The trustee would certainly question it and might go after the proceeds.
Answered on Jun 20th, 2012 at 9:14 PM
Criminal Law Attorney serving Fremont, CA
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Steven J. Alpers, A Professional Corporation
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Yes the trustee has that power.
Answered on Jun 20th, 2012 at 9:11 PM
Daniel James Wilson
Yes it is true. If your brother paid back a loan to an insider, friend or family member, trustee could get it back. Brother can pay it back after BK is finished.
Answered on Jun 20th, 2012 at 9:06 PM
Appellate Attorney serving Grosse Pointe Farms, MI
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Musilli Brennan Associates, PLLC
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Your father must disclose all assets and liabilities, the note from your brother to you father is an asset of his estate and it is possible the court will insist it is paid.
Answered on Jun 20th, 2012 at 9:01 PM