Question about extra money

[LGT]

We are going to have to file soon, however, DH just sold the last of the stock he owned. Approx. $3400 worth are we going to have to spend it all before we file. I would like to keep some in case we get into a bind during all of this. We owe DMIL some money that she now needs back. If we pay her out of this will that be okay? Need to get some work done on the van and DS is supposed to get braces. Any thoughts?

[SinkingFast]

Any money you pay back to relatives will receive close scrutiny. And might possibly be taken by the Trustee.

Payments to Insiders (family, friends, close personal business associates) made within a year prior to filing BK must be disclosed.

Since you're selling stock, possibly an asset the Trustee would be interested in, be sure to keep good records of where the money is spent. Make sure it's necessary living expenses.

Whether or not you can keep some savings for a "Rainy Day Fund" will really depend on your State's Exemptions.

[LGT]

Okay, if I can't pay her back, could I pay the orthodontist for the bulk of DS braces with this? It will be $5600 total. Could I pay DMIL say $500, would this throw up a flag?

[lrprn]

Okay, if I can't pay her back, could I pay the orthodontist for the bulk of DS braces with this? It will be $5600 total.

Question - has the braces work already been done? Or will it be done in the future?

If the braces work has already been done, then it's not a good idea because this is an existing debt and the payment is more than $600 total to one unsecured creditor during the 90 days before you file. This is a preferential payment (and a sizeable amount of cash to boot) so after you file, the trustee is very likely to decide to force the orthodontist to give all the money back to distribute to all your creditors equally.

If the braces work hasn't been done, especially if you aren't going to file for more than 90 days, then it should be ok.

Could I pay DMIL say $500, would this throw up a flag?

If you give the money as a gift (not to pay a debt) and as long as you give her less than $600 total during the 90 days before you file, you should be ok.

Be sure to ask your lawyer about both situations. What your local trustees will tolerate and the customs in your local bk court can be different. Don't want you to have any unexpected issues at all when you file!