Family Debts, Loans, Payments, and Repayments in Bankruptcy

by L. Jed Berliner

Dear Jane,

Your mother entrusted her funeral expense money to you last year.  You spent it on living expenses.  You don't want your mother to get notice of the bankruptcy as a creditor because you are very much ashamed.  You said that you were hoping to repay your mother with your expected tax refund, and asked if we could forget that you brought it up. 

Let's go through this slowly.

Every bankruptcy filer has a personal meeting with a trustee, who is appointed by the U.S. Department of Justice.  The meeting is in a fairly public room with five rows of chairs filled with other filers waiting their turn, while the trustee sits before a table in front of the room with one filer and the attorney.

The filer raises her right hand and takes an oath to tell the truth.  The meeting is recorded.  There's a big sign right behind the trustee that warns of five years in jail and a $500,000 fine for perjury. 

Then the trustee directly asks you if you've listed all your debts.  He directly asks If you owe any money to a family member.  And he directly asks if you've paid any money to any family member during the past year.

Next, the trustee directly asks you how you spent the tax refund.

So, Jane, I ask this question to you quietly and without judgment:  How good a liar are you?  If you're like each one of my other clients, you won't even be able to sleep before the meeting  – never mind maintaining the lie, the perjury, at the recorded meeting with the trustee

Now (I say jokingly, but to make the point), jail may not be a bad thing.  You get a dry room.  You get three meals a day.  You get an hour of exercise a week, which may be more than you're getting now.  You get a roommate named Bubba.

Get my point? 

No, Jane, we can't forget about this debt to your mother.  I'd be doing you wrong to counsel you otherwise.  You might be denied your bankruptcy protections from your debt, and you'd have every right to sue me after you got caught.

Not to make a big deal of this, but my initial intake form asked about "Loans From Family Members or Friends:  Name, Relationship, Amount, Purpose (MUST DISCLOSE)!!!"  You told me that your mother gave you $500 over the past year.  You're certainly not the first client in this situation, which is why I put that in my form.

I hasten to add that you just brought it up because you know in your heart that it was wrong to hold back the information from me.

Repayment to your mother is what we call a preference, where you preferred one creditor over the others.  (You know, those poor innocent credit cards.)  A trustee has one year to sue (yes, sue) your mother to recover the repayment and redistribute the money to all your creditors pro rata.  So, you can repay her andwe'll wait a year.  We'll see if your new situation in the future requires an adjustment of fees.

Or you can tell me that you swear to G-d and hope to die that (1) you've told your mother that you spent her money, and (2) and that she said you don't need to repay her, that it was a gift.  (You'll still have to disclose it as income when we get closer to the bankruptcy filing but she won't get notice.)

I'm very serious about the possibility of perjury.  I hope you trust me on this.

For more information,please call our office at 305 548 5020.

Twitter: www.twitter.com/yoelmolina_mo
Faceback page: www.facebook.com/lawofficeofyoelmolina
Linkedin profile: http://tinyurl.com/linkedinpagemo
Blog: http://tinyurl.com/molawblog

"Turn to us when you need help"