Preferential?

[laurannm]

We should be ready to file Ch 7 sometime in June. My parents have offered us $1500 (as a gift, not a loan) to help us get by day-to-day living expenses. Are there any issues with this when it comes time to file?

Thanks

[HHM]

Not really, I suppose it could be considered income.

[laurannm]

Should I pay them back anyways once I receive my tax returns? Or will that definitely make it a preferential payment at that point?

Thanks

[HHM]

Umm, why whould you pay back a "gift".

[laurannm]

No reason other to avoid it being considered income. But I guess that wouldn't really matter.....

[HHM]

This issue is a wash, so you probably should not do anything.

If you pay it back, it becomes a loan, and the trustee will see the transaction on your bank statements, and then the trustee could conceivably pursue your parents to pay that money back.

Since you already received the funds, it is income if you file within 6 months of receiving the funds.

[laurannm]

Crap...

What if we continued to pay our creditors and stay current and also pay back the money to my parents? Does that eliminate the issue altogether?

I know paying creditors when your planning to file doesn't usually make sense, but I'm concerned because I really don't want that to show as income, as we are on the edge between a ch 13 and a ch 7.

[lrprn]

What if we continued to pay our creditors and stay current and also pay back the money to my parents? Does that eliminate the issue altogether?

Sorry, no - the $1500 can still be considered income. Also trustees look at financial transactions between insiders (relatives or business partners) differently than paying your credit card creditors close to filing.

Under the circumstances, if you stop paying your non-secured creditors now, you should be able to use the extra money to tide things over until filing without needing the gift/loan from your parents and also not increasing your income.

Is there a reason you aren't using this common bk pre-planning approach?

[ameliabedilia]

Can you just get it as a check and cash it at their bank if you are really freaked out? Do they know you're filing? Maybe they can give it to you as cash.

Our parents were giving us $400 a month to pay our car while my husband was out of work. I put it on the schedules as "other income" or something. For us, we needed to show the extra money so we wouldn't be so negative on the schedule- we wanted to keep our car.

[InSeriousDebt77]

wrong thread...sorry

[ameliabedilia]

Well I think that would be a perfect explanation for the money! How else would you pay the payment of $260 if you are negative $6? Your parents are helping you get on your feet by giving you the money and you have proof you need it (dead car )

I really think you are freaking out when you don't need to. Do you need the money to get by? How else are you going to pay your car payment? If the answer is yes, then quit stressing and use it to pay your car payment. Remember if you are too negative on your schedule then you could have a problem reaffirming the car loan you just took out.

[laurannm]

Unfortunately though I have already received and deposited the funds in our checking account. I assume that as soon as I deposited it, it automatically became income?

I agree with you, but I have a feeling the trustee will look at it differently :-)

Is it possible to fail the means test but show negative on your schedules? I remember our lawyer saying we were -$6 on the schedules and we passed the means, but I don't remember exactly what the numbers worked out to be on the means test.

[laurannm]

Anyone know if it is possible to fail the means test (by a small amount), but still show negative income on schedules I & J?

Thanks in advance

[tallberry]

I may be wrong lauranm, but I interpret "failing" the median income portion of the means test as a good thing. That means that you are below the median income, if you "pass" then you are over the median income. Can you clarify which one you are? If you are below the median income and negative on the I and J, you are in good shape.

[laurannm]

By failing I mean we would show disposable income on the means test, but negative on the schedules I & J