Ooops! Don't make the same mistake.

[justbroke]

So is the mortgage payments if that is all the money was spent on. Then the money left or even more than the original is still going back into an exempt item, retirement funds. 'Hub

Ah, yes, but unless and until it's in an exempt place, like the 401(k), it's fair game. That is the only contention that I see.

[AngelinaCatHub]

Ah, yes, but unless and until it's in an exempt place, like the 401(k), it's fair game. That is the only contention that I see.

Yes, of course. However, is my precept correct, and with the proper explanation would it fly? After all, if he could not pay it back he has the option of liquidating the loan and paying the penalties and taxes. It is not like he took monies from another entity. 'Hub

[justbroke]

Yes, of course. However, is my precept correct, and with the proper explanation would it fly? After all, if he could not pay it back he has the option of liquidating the loan and paying the penalties and taxes. It is not like he took monies from another entity.

That's the part I don't know and really didn't want to speculate. The key is that if he had kept it himself, and put it into a checking account (for argument's sake), then the money would have been within reach of creditors for the time period that it was not in an exempt location.

I may be making a whole lot out of nothing. A reasonable explanation may well satisfy the Trustee.

[backtoschool]

The Op borrowed his own monies. Many here state to use up extra monies on exempt stuff as food and utilities and even pay rent in advance. He pulled his own money out of exempt funds, and if recovered completely, is putting it back where his own money came from. I cannot see fraud here except for fraudulent ignorance of the facts, but not fraudulent intent. It came from his funds, not a creditors funds to be used for exempt purposes (his mortgage) and could be explained as a mistake and put back into his exempt 401. I think he could slide through this one. 'Hub

A fraudulent conveyance, if done with a family member within a year of filing doesn't have to show intent. That is why I owe the trustee $1,000. Certainly there was no intent to defraud my creditors when I paid my mother's doctor's bill and fixed her heater.

By definition any transfer of cash or assets to a family member within a year of filing is considered a "fraudulent conveyance" especially if the transfer happened within the 90 window where the filer knew they were insolvent. I do think there is a risk to the OP here.

[whipster1]

Since it was a LOAN against the 401K it won't really be "401K" money until you don't pay it back right?

I would stick the money back into the 401k and wait wait wait.

[AngelinaCatHub]

Since it was a LOAN against the 401K it won't really be "401K" money until you don't pay it back right?

I would stick the money back into the 401k and wait wait wait.

Yes, as MSbklawyer stated, this is a sticky one. Interesting scenario, but 'Whip, I believe that would be his best bet. 'Hub

[pcn]

Since it was a LOAN against the 401K it won't really be "401K" money until you don't pay it back right?

I would stick the money back into the 401k and wait wait wait.

State by state may be different, but that is the exact situation our atty described that caused the debtor's case to be dismissed and barred from ever having the debts considered again. Because they attempted to protect them before filing it was looked at as fraud. I think it didn't matter that they had originally come out of a protected asset, it appeared that they were trying to protect them before filing.

[whipster1]

I know there is a time period when a 401K withdrawal is still considered protected, like when you are doing a roll-over etc...maybe if that time period has not passed yet he could put the money back...seems like 60 days might be the period but I don't know, I just remember rolling over an old state retirement account several years ago and I had to do it within a certain time period. Since this was a loan though probably none of this applies...

OP might just have to kiss the 25K goodbye or wait a loooong time before filing.

[MSbklawyer]

I recently had a bankruptcy client with a very similar situation. The elderly father had transferred his house to his daughter (my client) because he needed to get some government benefits that he would have been inelligible for while owning the house. After the father died, the daughter then transferred the house back to her mother.

Then the daughter decided she needed to file for bankruptcy. I had the mother transfer the house back to the daughter and the daughter moved in the house so she could exempt it as homestead.

Even though the daughter was eligible for a 7, we filed a 13 with a nominal monthly payment so that we could hit the "EJECT" button if it ever appeared that the trustee was going to get the property. We disclosed all this fully on her schedules and the trustee never even mentioned it.

Incidentally, the look-back period for a fraudulent conveyance is 2 years. The look-back for preferences to relatives is on year.

[music12]

MSbklawyer, what do you mean by the "EJECT" button?

[justbroke]

MSbklawyer, what do you mean by the "EJECT" button?

I think he means "voluntary" dismissal. This is allowed in a Chapter 13 context. There's no guaranteed "voluntary" dismissal in a Chapter 7. Filing the Chapter 13 allows the debtor to keep the property while "testing" the creditors and the Trustee. If it looks like the Trustee wants something in a Chapter 13... you just voluntarily dismiss the case.

[MSbklawyer]

I think he means "voluntary" dismissal. This is allowed in a Chapter 13 context. There's no guaranteed "voluntary" dismissal in a Chapter 7. Filing the Chapter 13 allows the debtor to keep the property while "testing" the creditors and the Trustee. If it looks like the Trustee wants something in a Chapter 13... you just voluntarily dismiss the case.

Precisely. A chapter 7 can take on a life of its own. Debtors can't dismiss a chapter 7 just because they want to. In a 13, the debtor can dismiss at any time.

[justbroke]

Precisely. A chapter 7 can take on a life of its own. Debtors can't dismiss a chapter 7 just because they want to. In a 13, the debtor can dismiss at any time.

While we're on that topic of Chapter 7s having their own life... I notice this Motion to Waive Discharge being used in some Chapter 7 cases. For the life of me, I can't really figure out what purpose it serves! It seems frivolous, but I've seen it used in 2 cases I reviewed today.

[MSbklawyer]

While we're on that topic of Chapter 7s having their own life... I notice this Motion to Waive Discharge being used in some Chapter 7 cases. For the life of me, I can't really figure out what purpose it serves! It seems frivolous, but I've seen it used in 2 cases I reviewed today.

I've never seen one, JB. Why would someone file a 7 and then waive the discharge?

[justbroke]

I've never seen one, JB. Why would someone file a 7 and then waive the discharge?

I just saw it twice when reviewing some Trustees Motion to Dismiss. Was the strangest thing I ever saw. Some other searching found that Judges usually deny these anyhow. I think it's a tactic where they are trying to get a dismissal since they changed their mind after filing the Chapter 7.