Bankruptcy

Show Mom How Much You Love Her by NOT Paying Her Back! (Part Two)

By Russell A. DeMott, Charleston Bankruptcy Lawyer

In part one, I examined why you should not repay mom prior to filing bankruptcy and discussed preferential transfers, or “preferences.”  In this post I’ll tell you about what options you have if you’ve already paid her back.  After all, much of what bankruptcy lawyers do is to provide solutions to these types of problems if we’re told about the problems in time to do something about them.

But What If I’ve Already Paid Her?

If you’ve already repaid mom during the one-year preference period, all isn’t lost.  Here are some possible ways to stop the trustee from pursuing the preference:

• First, if the payments are under $600, the trustee can’t sue mom for the payments, the preference falls within the “small preference” exception.  Also, if they payments are $600 or more, but no that much–say not more than $1,500 or $2,000, the trustee still might decide not to bother with the transfer.  Trustees don’t like administering bankruptcy estates where the asset values don’t justify the cost and effort of administration.
• Second, those payments may be “ordinary course” payments.  In other words, it’s normal in both mom’s financial affairs and yours for her to loan you money, and you’ve paid her back according to your agreed upon terms.  This is called the “ordinary course of business” defense.
• Third, perhaps mom gave “new value” in exchange for the payment.  For example, she made another loan or gave you something else of value in return.
• Fourth, if the preference occurred close to a year prior to the time in which you plan on filing your bankruptcy, you can simply wait out the year.  Sometimes, there’s really no rush to file your bankruptcy case.  If not, just wait to file it.  If more than a year goes by, mom’s in the clear.
• Fifth, undo the transfer by having mom refund the money.  This, however, creates another problem.  You must be able to exempt the money you now have.  (Exemptions are allotments of various types of property you can keep free of the claims of creditors and the bankruptcy trustee.)  If you can exempt the refunded money, you may repay mom after your case is over.

Despite all these strategies for dealing with preferential transfers to mom, it’s far better to simply wait until after your bankruptcy case is over to repay her.  It’ll feel odd, but it’s the way to keep mom from being unnecessarily drawn into your bankruptcy case.

All this illustrates the need to tell your lawyer everything.  You’ve heard about this over and over again here at Bankruptcy Law Network. And for good reason.

Russell A. DeMott is a Charleston, South Carolina bankruptcy Lawyer who helps clients file Chapter 7 and Chapter 13 bankruptcy.

Full post as published by Bankruptcy Law Network on February 12, 2010 (boomark / email).