What would the trustees consider preferential payments in a bankruptcy case? 20 Answers as of July 08, 2014

I'm considering filing for bankruptcy within the next 6 months. I have some money (not a lot - less than $5,000) in savings. My domestic partner, who I'll most likely list as a dependent on my paperwork, needs help making his car payment. The total payoff amount on his car is less than $5,000. Also, our rental agreement/lease is on his name, so I pay rent to him and he pays the landlord. If I give him $5,000 to pay off his car and list this money as paying the rent in advance, would this be a problem? Would the trustees consider these payments as preferential? Thank you!

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Law Offices of Daniel J Winter
Law Offices of Daniel J Winter | Daniel J Winter
You need to consult with an experienced bankruptcy lawyer now, and before doing anything. These questions are too complex to answer in an online forum. Most bankruptcy attorneys offer free consultations.
Answer Applies to: Illinois
Replied: 7/8/2014
Arany & Associates
Arany & Associates | Lawrence C. Arany
Technically, a preferential transfer occurs when the debt one is paying is one's own debt. Thus, your plan to pay your partner's car note is not a preferential transfer. However, you must avoid the appearance that you have made a "fraudulent transfer." You are obligated to disclose the payment of your partner's note in your "Statement Of Financial Affairs." There should be several alternative ways to help your partner during the next 6 months. Perhaps an increase in the proportion of the household expenses to which you contribute?
Answer Applies to: Indiana
Replied: 7/7/2014
Janet A. Lawson Bankruptcy Attorney
Janet A. Lawson Bankruptcy Attorney | Janet Lawson
Why do you need to do that? Check the exemption statutes in your state. Don't transfer any money to anyone without consulting a lawyer first.
Answer Applies to: California
Replied: 7/4/2014
EDWARD P RUSSELL | EDWARD P RUSSELL
Any property given to family or people close to you within 6 years of filing a bankruptcy would be a preferential transfer and the trustee must bring it back into the bankruptcy estate for the general creditors.
Answer Applies to: Minnesota
Replied: 7/2/2014
Law Office of Peter M. Lively
Law Office of Peter M. Lively | Peter M. Lively
Are you registered domestic partners? If not, then the transfer is likely to be considered a fraudulent transfer rather than a preference because you aren't paying a debt you are giving away assets without receiving reasonably equivalent value. You should meet with a bankruptcy attorney to discuss how you have been handling your household transactions and get professional assistance with how you characterize these funds.
Answer Applies to: California
Replied: 7/2/2014
    Michael B. McFarland, P.A. | Michael B. McFarland
    If you make a payment for one thing and list it as being for something else, you are making a fraudulent statement in a federal court proceeding = perjury = up to 5 years and $500,000. You should consult with an experienced bankruptcy attorney for assistance.
    Answer Applies to: Idaho
    Replied: 7/2/2014
    The Law Office of Darren Aronow, PC
    The Law Office of Darren Aronow, PC | Darren Aronow
    Yes, advance payments would likely be considered preferential.
    Answer Applies to: New York
    Replied: 7/2/2014
    Ronald K. Nims LLC | Ronald K. Nims
    First, taking an unrelated adult as a dependent in bankruptcy generally isn't allowed, filing paperwork claiming an unrelated adult as a dependent could even be considered fraudulent. $5,000 of rent paid in advance would be considered a fraudulent transfer and the trustee would require that the money be paid to him/her to be used to pay your creditors and the expenses of the estate. Trustees are quite voracious about collecting this money because the "expenses of the estate" equals their fees.
    Answer Applies to: Ohio
    Replied: 7/2/2014
    A Fresh Start
    A Fresh Start | Dorothy G Bunce
    You already know that what you are doing is a wrongful attempt to prevent your creditors from being paid money that they would be legally entitled to receive if you filed bankruptcy and you don't need me to tell you this. I would take this situation to a local bankruptcy attorney, pay the retainer fee and follow the legal advice on spending the money from the attorney that you pay to look out for your financial interests.
    Answer Applies to: Nevada
    Replied: 7/2/2014
    Steele, George, Schofield & Ramos, LLP
    Steele, George, Schofield & Ramos, LLP | Alan E. Ramos
    This would not be a preference, but it would be a problem. If you live in California, the money would most likely be exempt (meaning that you could keep it) and if you later wanted to use the money to pay your domestic partner you could. If you transfer the funds now, the trustee could demand repayment from your partner. You should see an attorney before you do anything.
    Answer Applies to: California
    Replied: 7/2/2014
    Law Office of Melissa Botting | Melissa Botting
    You have a number of problems that need to discuss with an attorney as quickly as possible. If you list your domestic partner as a dependent, you increase the time period for preferential transfers from 6 months to 2 years. You may not be able to list your domestic partner as a dependent at all. You should not pay your bills in advance. The trustee may get the funds back from the creditors you have paid. In the best case, you would not have helped the situation if you paid the car off, claimed your partner as a dependent and then had to repay the trustee the $5,000.
    Answer Applies to: Texas
    Replied: 7/2/2014
    Law Office of Michael Johnson
    Law Office of Michael Johnson | Michael Johnson
    Yes. You may be able to protect some of the money with exemptions.
    Answer Applies to: Florida
    Replied: 7/2/2014
    Charles Schneider, P.C.
    Charles Schneider, P.C. | Charles J. Schneider
    No it's a fraudulent conveyance.
    Answer Applies to: Michigan
    Replied: 7/2/2014
    Law Office of Andrew Oostdyk
    Law Office of Andrew Oostdyk | Andrew Oostdyk
    Preferential payments are payments made to creditors that you give a preference to over other creditors, thus depriving the other creditors. Technically, these payments do not appear to be going to your creditors and are therefore not preferential payments, but you have another issue in that you are attempting to hide assets and potentially deprive your creditors of payments that they are entitled to. I recommend speaking with a Bankruptcy attorney in your area. She can get you through Bankruptcy without violating the Bankruptcy Code and it is possible that your $5,000 may be listed as an exempt asset.
    Answer Applies to: Texas
    Replied: 7/2/2014
    Garner Law Office
    Garner Law Office | Daniel Garner
    No reputable attorney would recommend that course of action. It would definitely be viewed as a preference payment which the trustee would demand to be repaid either by you or your domestic partner. It's bad enough that you pay your rent through him, but the trustee has discretion to disregard that as merely a convenience for you and him. It is likely that you could "exempt" the savings if you keep them, so why throw them away?
    Answer Applies to: Oregon
    Replied: 7/2/2014
    Goldsmith & Guymon
    Goldsmith & Guymon | Marjorie Guymon
    Your proposed payments would be considered preferential and the trustee could pursue recovery. I suggest putting the car in your name and them you could exempt it.
    Answer Applies to: Nevada
    Replied: 7/2/2014
    Barnhart Law Office
    Barnhart Law Office | Bruce C Barnhart
    Do not transfer any assets, without first speaking with your attorney. Preference payments include payments to insiders and partners within 12 months of filing.
    Answer Applies to: Nebraska
    Replied: 7/2/2014
    Wellman Law LLC
    Wellman Law LLC | Keith A. Wellman
    Your idea would likely be a transfer that the Trustee could avoid if done in that manner. I think there are some ways to arrange things that would not be a problem, but I think more facts would be helpful. I think it's very clear that you need to have an attorney advising you through this. You have the money to put down a retainer and be advised through the process. I am also wondering why you have made up your mind regarding a 6 month time frame. Many times people come to incorrect conclusions on their own on things like how long they need to wait, like incorrectly thinking they have to wait 6 months after a pay decrease to be eligible for Chapter 7, which simply is not always the case for various reasons. Again I think your situation calls for an attorney because there are so many follow up questions with this type of situation that can't be properly and fully addressed in this type of format.
    Answer Applies to: Kansas
    Replied: 7/2/2014
    Kenneth A. Parker, P.C.
    Kenneth A. Parker, P.C. | Ken Parker
    Before you do that, call a bankruptcy attorney. Let's go over your financial situation before you payoff your partner's car.
    Answer Applies to: Georgia
    Replied: 7/2/2014
    Danville Law Group | Scott Jordan
    Probably. Also, are you willing to lie to the United States Trustee and risk going to jail for $5000? Why not just exempt the cash and once exempt, you can use it for anything you want.
    Answer Applies to: California
    Replied: 7/2/2014
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