Bankruptcy

The Insider View of Friendship

By Bill McLeod, Esq.

When is a ?friend? an insider and when is an ?insider? a friend? That was a question that a Kansas Bankruptcy Court had to struggle with in the case of In re Tankersley.

The chapter 7 debtor?s friend (Anne) paid about $21,000 on the debtor?s mortgage. A little less than a year prior to filing the case, the debtor paid her back $5,000. About 6 months later, she paid her $4,000 and as of the date of the petition, she still owed her about $12,000. The debtor identified the payments to Anne on her statement of financial affairs, and identified her as an ?insider.?

The chapter 7 trustee sued the friend (Anne) to avoid the preferential transfer and to recover the value of the property. The trustee alleged that he was entitled to a one-year look back period because Anne was an insider, and was disclosed as such on the debtor's statement of financial affairs.

The court found that they did not appear to be especially close friends. The debtor had never been to Anne?s home, and they spoke on the phone every few weeks, and saw each other sporadically.

Annie also did not fall under the definition of per se insider, such as a family member, a business partner, or a corporation that the debtor has an interest in or controls. While the court acknowledged that the debtor identified Anne as an insider, that disclosure was not dispositive but was done ?for the debtor?s own protection.? The trustee did not prove that Anne was an insider: Anne ?did not cross the threshold from friend to insider?.just as [the debtor] never crossed the threshold into [Anne?s] home.? Since Annie was not an insider, she does not need to turn over the payments she received from the debtor.

In re Tankersley, 382 BR 522 (Bankr.D.Kan February 13, 2008).

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Full post as published by McLeod Law Offices on April 04, 2008 (boomark / email).