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How do trustees get the money from "preferred" creditors?

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  • How do trustees get the money from "preferred" creditors?

    Okay, a bit of the backstory before I ask my question:

    Husband and I are in the process of chapter 7 bk. Have had the 341, and during the questioning (my gods I had never been so nervous as then!) we discovered that much to our embarrassment, a loan we repaid to my mother-in-law for 1k total happend in the year back from our filing date, *not* two years like my husband originally figured. As in we paid her from the tax refund of 2010, resultant of the tax return of 2009. My husband had 2009 stuck in his head. Explained to the trustee immediately that we had borrowed money from her for living expenses while husband was laid off, he indicated that *if* was going to pursue it, he'd get in touch with our lawyer for her contact info.

    That was October 28th. Fast forward to today, when a very irate mother-in-law calls my husband and states that she received a letter in the mail informing her that the Bankruptcy District Court wants that 1k back. In two weeks.

    Two weeks? Is that normal? How do they expect a retired woman to make 1k from last February magically re-appear? Do they realize that we will have to pay her back again, provided she doesn't skewer us this Christmas when visiting? Why wouldn't they have informed my lawyer? What doesn't make sense to me at all is that they wanted any payments above $600 reported. So if I had just paid her with two payments of $500 I would have been in the free and clear?

    When we spoke to the lawyer immediately after the 341, he said that the trustee almost never goes after something that small, they can only recover something like 70% of the lump sum so it isn't worth the hassle for something small. Did he out and out lie to us?

    Somewhat unrelated to the trustee but related to the lawyer being a buffoon: Is there a deadline that we have to sign the Form 24 (Verification of debtor education)? We were supposed to sign it the day of the meeting, but his secretary was out. Haven't been able to get a hold of either of them since the meeting.

    If anyone can shed some light on what the recovery process is like, it would help a lot. I really don't want to see my MIL get hurt.

  • #2
    I can't answer all of this, but I can answer part of it. What happened with your MIL is a 'preferential insider payment'. Preferential because you paid back one creditor, and none of the others. Next, the payment was to a family member or close friend. That made it an 'insider' payment.

    BK law allows the trustee to avoid or 'undo' any such payment. So the trustee went after your MIL. The trustee should have offered you a chance to make this payment, instead of him going after MIL. Though, most likely, you couldn't handle the 1K lump sum either, or you wouldn't be bankrupt.

    We had both of these happen in our BK due to lack of preparation and education in the ways of BK by our attorney. Fortunately, we did have the means to pay the trustee off, so he would not go after our son-in-law--a relationship that is already on shaky grounds.

    I know your hubby had the wrong dates in his mind, but did you NOT have paperwork to reflect all this?

    Good luck to you!
    "To go bravely forward is to invite a miracle."

    "Worry is the darkroom where negatives are formed."

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    • #3
      How did they know you paid back your mother? Was there a check written to her or did you give her cash? I'm curious because I have a similar situation.

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      • #4
        Originally posted by AFISurfer View Post
        How did they know you paid back your mother? Was there a check written to her or did you give her cash? I'm curious because I have a similar situation.
        That's what i want know.

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        • #5
          Originally posted by AngelinaCat View Post
          BK law allows the trustee to avoid or 'undo' any such payment. So the trustee went after your MIL. The trustee should have offered you a chance to make this payment, instead of him going after MIL. Though, most likely, you couldn't handle the 1K lump sum either, or you wouldn't be bankrupt.
          True. But the trustee could have allowed the OP to give up 1k worth of exempted property--maybe even cash (we don't know).
          Don
          Filed Pro Se on 8/4/11 (No Asset, Chapter 7)
          Redeemed Automobile ProSe (722 Redemption),Discharged on 11/3/11

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          • #6
            Seems to me the Trustee is being a bit unreasonable. I believe you could work out this through your lawyer and make payments to the Trustee. It makes you an asset case though and will last a bit longer before discharge and longer for close as the Trustee has to distribute that vast amount of funds. As your lawyer says, I too am surprised he would nail you on that one. Your inlaws could simply plead they cannot pay it and let the jerk attempt to sue. I don't think this Trustee will go that far. I would attempt for them to bluff this jerk. He is unreasonable. 'Hub
            If I knew it all, would I be here?? Hang in there = Retained attorney 8-06, Filed 12-28-07, Discharge 8-13-08, Finally CLOSED 11-3-09, 3-31-10 AP Dismissed, Informed by incompetent lawyer of CLOSED status, October 14, 2010.

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            • #7
              Originally posted by AngelinaCatHub View Post
              Seems to me the Trustee is being a bit unreasonable. I believe you could work out this through your lawyer and make payments to the Trustee. It makes you an asset case though and will last a bit longer before discharge and longer for close as the Trustee has to distribute that vast amount of funds. As your lawyer says, I too am surprised he would nail you on that one. Your inlaws could simply plead they cannot pay it and let the jerk attempt to sue. I don't think this Trustee will go that far. I would attempt for them to bluff this jerk. He is unreasonable. 'Hub
              I agree, let the attorney contemplate spending his time in an attempt to recover the funds or just simply make an offer to the trustee with the explanation that he may not get anything from them because they don't have the money.

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