Don't pay mom back!

 Actually, the headline should say:  "Don't pay mom back before filing".

In the paperwork that is filed with your bankruptcy paperwork, we have to list any payments that you have made to "insiders" within the year before filing the bankruptcy.  And at the trustee meeting the trustee will ask about payments to relatives or friends. 

So, what is an "insider"?  Relatives and business "partners" are insiders.  Close friends may be insiders.  (A definition is below.)

If you owe mom money and  have paid mom $600 or more dollars (payments of less than $600 are exempt) within the year prior to filing bankruptcy, the trustee may very well sue them to get the money back.  The trustee will then subtract his fees from the amount he gets and divide up the remainder amongst all your creditors. 

One of the theories of bankruptcy law is that similar creditors should be treated in a similar manner.  If you "prefer" one unsecured creditor over all of your other unsecured creditors, that  preferential transfer must be disclosed and can be reversed.

You can't "forget" to mention this in your paperwork, because you are signing the papers under penalty of perjury.  And the money is probably traceable, anyway.

Notice that I said "unsecured" creditor.  Your car payment or house payment are payments on secured debts and would not be subject to this. 

However, the good news is that after you file, you can pay mom back without a problem.  You may hear someone say that doing so brings all the debts back, and even if that were true in 1960 or so, that has not been true since the Bankruptcy Code became effective in 1979

As always, if you have questions, feel free to call me at 320-252-4473.

Sam Calvert

The definition of "insider" for individuals is below:

The term "insider" includes-

(A) if the debtor is an individual-

(i) relative of the debtor or of a general partner of the debtor;

(ii) partnership in which the debtor is a general partner;

(iii) general partner of the debtor; or

(iv) corporation of which the debtor is a director, officer, or person in control;