Question regarding loan from family member

[emptywallet]

I am in the beginning stages of filing Ch 7 in California. I disclosed to my attorney that I had borrowed and repaid a loan from a family member about 5 months ago. My attorney has said that the repayment is problematic, that the trustee may require me to get that money back so the court can decide how to administer those funds. (Pay back a credit card instead of my family member?) This sounds crazy to me-I'm not going to ask my family member for that money back. Any assistance will be appreciated.

[StartingOver08]

Acually what happens is the Trustee goes after those funds. You paid an 'insider' and the lookback period for insider transactions is one year.

Relatives and friends are considered insiders.

[AngelinaCat]

Hi emptywallet: welcome to the forum.

Unfortunately, your attorney is correct—it is problematic. That means you need to plan for your bankruptcy filing. In order to advise, we need to know how much this payment was and when it occurred.

The current BK law does not allow for ‘preferential insider’ payments within a certain time frame. Here are the definitions:

PREFERENTIAL—you pay ONE creditor, and ignore all of the others. The BK law says ‘NO”. You are to treat all debts equally. You make payments to ALL creditors, or to NO creditors.

INSIDER—a family member or close friend that the courts can consider an insider. Example: god-daughter—not a family member, but treated as one.

Now, your attorney is saying ‘problematic’ because of all this, but the solution is to wait it out. You said you are five months from filing? The usual look-back period is six months.

For preferential insider payments it is prudent to wait a year or more—especially if the sum of money involved is sizable. Let all of this roll off the clock if you can. Only you and your attorney can determine this.

But remember this bit of advice from someone who has been ‘snake-bit’ by an attorney—the ultimate determiner of your case is you. Get yourself as educated as you can by reading all you can find.

Good luck~~~