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    Is this an insider payment?

    Hi all,

    I am attempting to file a chapter 7 pro se. My wife and I pass the means test no problem, but we pay rent to my in-laws. If that rent payment is taken out of the schedule j calculations than we show positive income of $1400/mo - which I am sure will lead to a conversion to 13 which I can't have because I can't actually pay anything. Does anyone have any experience with this? On my statement of financial affairs I am assuming I would need to point this payment out as to an "insider", correct? Any help is appreciated.

    #2
    DO you have an actual lease, in the normal sense, signed and dated, with all the usual clauses?
    11-20-09-- Filed Chapter 7
    12-23-09-- 341 Meeting-Early Christmas Gift?
    3-9-10--Discharged

    Comment


      #3
      Do you have a lease or rental agreement on property they own that you are renting, or are you just living with them and paying rent?

      I don't think it matters who you pay your rent to if it's a legitimate rental agreement at fair market value on the property. If so it should not be considered an insider payment. If not, then you might have an issue.
      Case Closed > 2/08/2010

      Comment


        #4
        Originally posted by scarn View Post
        Does anyone have any experience with this? On my statement of financial affairs I am assuming I would need to point this payment out as to an "insider", correct? Any help is appreciated.
        This is not an insider payment. Especially since it's for rent. So long as you have a lease, and can demonstrate (if questioned) that you pay this, I see no issues.

        I would say, though, that it reads as though your rent is pretty high. You should check the IRS allowances for rent in your State/County!
        Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
        Status: (Auto) Discharged and Closed! 5/10
        Visit My BKForum Blog: justbroke's Blog

        Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

        Comment


          #5
          it's not an insider payment even if you don't have a (written) lease, unless the rent is far above fair market value. i didn't have a lease and the trustee didn't blink. and no, this does not go on your statement of financial affairs under insider payments. insider payments are for when you have a debt to an insider and you pay it back. current rent is not a debt.
          filed ch7 May 09
          341 june 09
          discharged, closed Aug 09

          Comment


            #6
            Originally posted by music12 View Post
            it's not an insider payment even if you don't have a (written) lease, unless the rent is far above fair market value. i didn't have a lease and the trustee didn't blink. and no, this does not go on your statement of financial affairs under insider payments. insider payments are for when you have a debt to an insider and you pay it back. current rent is not a debt.
            I agree, but let me enhance this: The rent could be too high to swedge the numbers or too low as a parental favor. That could then become a problem as insider payment via substantial discount.

            It would be advisable to get a consensus of what the average rent in that area it. As long as there is a paper trail of the payment of rent and that it did in deed go for rent, a lease is not required. It would be nice if the Op had one, but not necessary.

            It becomes abuse if too high, or too low. Being paid to a family member is not relevant if it is fair market value in that location. '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.

            Comment


              #7
              I would agree with 'hub that if the rent is higher than market rate, the extra will be considered either an insider payment or will be questioned as an legitimate expense. The OP should only assume that market rate rent as defined by the IRS for their area will be acceptable to the trustee.
              You can't take a picture of this. It's already gone. ~~Nate, Six Feet Under

              Comment


                #8
                Originally posted by backtoschool View Post
                I would agree with 'hub that if the rent is higher than market rate, the extra will be considered either an insider payment or will be questioned as an legitimate expense. The OP should only assume that market rate rent as defined by the IRS for their area will be acceptable to the trustee.
                Oh yes, I didn't think of that. '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.

                Comment


                  #9
                  Thanks for all the answers. I don't have a lease but there is a paper trail of payments. The rent is actually $400 less than the allowed amount for my county and family size, so I think I'm good there - unless that may be read as too low and as a gift from the parents. What a line to walk! I'm beginning to think I should get an attorney who knows this court, just to be on the safe side...

                  Comment


                    #10
                    Excellent idea....you hire an attorney not only for their expertise but because they know how your specific district works and the Trustees in the district.
                    Filed CH 7 9/30/2008
                    Discharged Jan 5, 2009! Closed Jan 18, 2009

                    I am not an attorney. None of my advice is legal advice in any way..

                    Comment


                      #11
                      Originally posted by scarn View Post
                      Thanks for all the answers. I don't have a lease but there is a paper trail of payments. The rent is actually $400 less than the allowed amount for my county and family size, so I think I'm good there - unless that may be read as too low and as a gift from the parents. What a line to walk! I'm beginning to think I should get an attorney who knows this court, just to be on the safe side...
                      Brilliant! I'm happy that your rent is below market, because I was concerned with that (in my earlier post). I don't think you need to worry about "gifts". The attorney you hire will help you through the process!
                      Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                      Status: (Auto) Discharged and Closed! 5/10
                      Visit My BKForum Blog: justbroke's Blog

                      Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

                      Comment


                        #12
                        hmm nobdy asked me who my landlord was ?

                        my parents own the house i live in. i pay rent but probley not the going rent
                        but, my husband fixes minor stuff when one of the houses needs work
                        leaky faucet, or tile floors. I pay 400.00 a month. I think the going rate for this size house around her would be about 600 or 650 a month
                        (but they would run when they got there first ele bill) lol
                        400 rent
                        300 or 350 ele in winter (dang wall heaters
                        filed chapter 7 Nov 17, 2009
                        341 meeting Dec 21
                        dec 22 no funds no asset
                        Objections for Discharge due by 02/19/2010

                        Comment


                          #13
                          I haven't heard of any Trustee asking who your landlord is. That may only come up if your mentioned it (on your petition), or your landlord showed up at the 341 Meeting. Your landlord is irrelevant, unless, maybe if you're paying well over market rent or are paying more than 35% of your gross income.
                          Chapter 7 (No Asset/Non-Consumer) Filed (Pro Se) 7/08 (converted from Chapter 13 - 2/10)
                          Status: (Auto) Discharged and Closed! 5/10
                          Visit My BKForum Blog: justbroke's Blog

                          Any advice provided is not legal advice, but simply the musings of a fellow bankrupt.

                          Comment

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