Worried about a loan I paid off that may get taken away in bk.

[michael.foutz]

Hi I spoke with a lawyer for the first time today. One of the things we talked about that I didn't like was that a loan that my parents gave me about 6 months ago and I promptly paid back. The lawyer said that any money that I paid on this loan would get taken from them, about $830 and redistributed between all the creditors I owe and my parents evenly.

This is a huge dilemma, me and my wife would eventfully repay my parents the same loan twice if this happens to my parents.


Between me and my wife we owe money to about 25 different creditors maybe more. So my parents loose the $830 I paid back to them and then receive there share of about $40 maybe and the creditors would receive all the same amount as my parents?

Has any one had been in this predicament? Is it likely the trustee will pursue taking the money from my parents?

[magyar123]

Unfortunately your lawyer is right. You made a preferential payment. Your parents are/were considered creditors, especially since it was 6 months or within 6 months before filing.

[HHM]

However, the amount is small enough, it may be a non-issue

But technically, the trustee probably could insist the money be paid to the BK estate as the money was a preferential payment.

[michael.foutz]

How often do they redistribute preferential payments? Ive did some research on this since I posted and it turns out that this situation is called Insider preferences since its a relative.

[seanf12]

If the required minimum payment to a particular creditor was $800, and that was made within the past 6 months, would that be considered preferential? I am guessing no...

[michael.foutz]

Came up with something that the lawyer might of missed. The loan my parents gave me was secured loan I'm guessing. No paper work was involved.

I agreed to give them my car to sell and out of the total they sell it for they would get there amount owed and give me the remaining balance.

What I have found is if its a secure loan it cant be considered Insider preferences. Well I think this is correct, I haven't found much info on this. And without paper work it would probably be hard to prove it was a secured loan.

[HHM]

Oh man, you keep making the situation worse.

If there was no paperwork, especially for auto loans, then it won't be considered secured.

Now you have another problem...you possibly transferred an "asset" to your parents. But first, did you actually get any money back from your parents for the proceeds of sale. Second, did your parents sell it for at least market value and how much did they get for the car? Third, did you actually sign the title over to your parents, or did you just physically give them the car to sell?

You are right, the loan repayment would be called an Insider preferential payment, and the "legal" threshold amount is $600, but most trustees don't bother until the amount gets over $1,000 (it really depends on the trustee).

[michael.foutz]

Oh man, you keep making the situation worse.

If there was no paperwork, especially for auto loans, then it won't be considered secured.

Now you have another problem...you possibly transferred an "asset" to your parents. But first, did you actually get any back from your parents for the proceeds of sale. Second, did you parents sell it for at least market value and how much did they get for the car? Third, did you actually sign the title over to your parents, or did you just physically give them the car to sell?

You are right, the loan repayment would be called an Insider preferential payment, and the "legal" threshold amount is $600, but most trustees don't bother until the amount gets over $1,000 (it really depends on the trustee).

Sorry, I guess the way I worded that sounded like we sold the car. I never defaulted on the loan with my parents and I did recieve the title back from them when the loan was paid off and the car was never sold.

Basically I handed them the title and told them that if I didn't pay the amount they loaned me they would get the car to sell to pay off what they loaned me.

It was a verbal contract but both partys who made the verbal contract are willing to testify under oath that it was a secure debt.

[HHM]

Ok...that is better.

However, the verbal agreement is pointless as regards the security interest. When it comes to automobiles, security interests are technical (and statutory). Generally, to perfect a security interest in an automobile, the lien holder MUST be recorded on the title, if the lien holder was not recorded, there is no enforceable security interest. (at any rate, that is what the trustee will argue). That does not mean there was not a loan agreement, I just don't think the court will consider it a secured loan because, presumably, your parents failed to record the title with them as lien holder.

Honestly, though, I don't think the amount is worth the trustees time.

[pa308]

My lawyer said that if a payment like that was more than a year from filing date it wouldnt be a problem. That they ask about have you made a payment to an insider in the past year.