preferential payments.....

[baguy]

I had a loan with my parents, paying them $250 a month to pay it off. My last payment with them was last month, and throughout this entire time I have stayed current with my payments for every other debt I had. However, starting next month I will likely not be able to make all my payments as my ARM is going up....

Anyway, my question is, could they go after my parents for preferential payment, even though this debt is paid in full and I kept up will ALL payments throughout this time? I wouldn't think so since I paid everyone, but I was just wondering....Thanks.

BA

[XploringOptions]

Hi baguy,

I am hoping others will weigh in as I am still in the learning boat, but I believe that you will be okay. If I understand things correctly, it is the payments of 500/600 (whichever one, can't remember) that raises the preferential payment flag. Since the payments you made to your parents is at 250/month, you should be just fine...

0.02

[yoyoma51]

First, it is the TOTAL of all payments over a period of time. Not what the individual payments are.

Second, I believe parents would be considered "Insiders", therefore the trustee can (and will) go back for the period of 12 months and collect the past 12 payments from them to distribute to your creditors.

[JRScott]

You need to put some distance between you and it. Generally the flag is 600 dollars paid in the last 90 days. However since they are insiders you'll have to list all payments made to them in the last year.

This is a question you should ask a local bankruptcy lawyer in your area during a free consultation .

[lrprn]

Here's an important question that hasn't been asked yet - is the loan with your parents in writing and witnessed? (I'm assuming the loan is not secured to some asset of yours.)

If the loan is in writing, then your parents could be considered just another unsecured creditor. You list the loan and it is wiped out in bankruptcy. But you can pay back whoever you want after your bankruptcy is over....wink, wink

Ask an experienced bankruptcy lawyer or two (or three!) in your area what to expect with your parents' loan if you file. Most provide free or low cost initial consultations. You'll learn a great deal about what issues you might face and if bankruptcy is indeed the right answer in your situation.

[epiphany]

Just a question Lrprn....why could this be considered an insider payment, if the OP was current with all other debts?

Just wondering.

ep

[pd1373]

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[lrprn]

Just a question Lrprn....why could this be considered an insider payment, if the OP was current with all other debts?

Whether a payment is a preferential payment or not depends on whether the OP pays his parents more than $600 total in the 90 days before filing. Paying $250/month will put the OP over the $600 limit. Then it all depends on an interpretation by the trustee.

The best option in this situation is for the OP to *NOT* pay his parents more than $600 in the 90 days before he files. That way what he's paying his parents doesn't meet the definition of a preferential payment and the trustee has no grounds to ask the parents to surrender the cash. The OP will have to list his parents as one of his creditors though. The amounts here are small enough, it's doubtful most trustees would find it worthwhile to go after.

[laurannm]

Does the same apply if the required minimum payments to creditors are above $600? I have been keeping current (although plan to stop paying a couple of months before filing) and at least two of my creditors have minimum payments of over $600.

Thanks

[epiphany]

Whether a payment is a preferential payment or not depends on whether the OP pays his parents more than $600 total in the 90 days before filing. Paying $250/month will put the OP over the $600 limit. Then it all depends on an interpretation by the trustee.

The best option in this situation is for the OP to *NOT* pay his parents more than $600 in the 90 days before he files. That way what he's paying his parents doesn't meet the definition of a preferential payment and the trustee has no grounds to ask the parents to surrender the cash. The OP will have to list his parents as one of his creditors though. The amounts here are small enough, it's doubtful most trustees would find it worthwhile to go after.

Thanks. I appreciate it and I get it. But I am confused about yoyoma51's comments saying that the trustee can go back for 12 months for insider payments. ???

yoyoma51: Second, I believe parents would be considered "Insiders", therefore the trustee can (and will) go back for the period of 12 months and collect the past 12 payments from them to distribute to your creditors.

What exactly is an insider payment? I can guess but I don't know for sure. And does it have the same repurcussions as a preferential?

Thanks as always,
ep

[lrprn]

What exactly is an insider payment? I can guess but I don't know for sure. And does it have the same repurcussions as a preferential?

In bankruptcy, insiders are relatives, corporate officers, directors, and other types of preferential financial relationships. The insider provisions of the bankruptcy law prevent the debtor from paying relatives and business decision-makers at the expense of non-insider creditors.

Because of the higher potential for hiding assets inside these close relationships, the trustee can look back for one year before filing rather than just 90 days like they do for non-insider relationships.

There's an excellent explanation of preferential and insider payments at http://www.moranlaw.net/preferences.htm . Hope this helps!