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JoeLawyer, Attorney
Category: Bankruptcy Law
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Experience:  Attorney in the practice of Bankruptcy Law since 1996
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I made the mistake of loaning a friend money (26K)not realizing

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I made the mistake of loaning a friend money (26K)not realizing her financial situation. The agreement was that she would pay me back from her 401K after her divorce was final. Now she is planning to file BK. If she takes a loan out against her current 401k, how long does she have to wait to file BK so that the courts do not come after me for the money?
Submitted: 5 years ago.
Category: Bankruptcy Law
Expert:  JoeLawyer replied 5 years ago.
Hi becca:

It was nice of you to help a friend in need, regardless of what happens...

Since you called her a friend, then you are probably considered an "insider" rather than a regular creditor. Therefore, she will likely have to report paying you in her bankruptcy petition if she files bankruptcy within 12 months after paying you . This would probably lead the trustee to avoid her payment to you, get the money back from you, and spread it out evenly among all the creditors, pro rata, since this would be deemed a "preference."

Typically, it is wise for a debtor contemplating bankruptcy to wait at least a year after paying an insider if the debtor does not want the trustee to go after the insider. Or, some debtors opt to file their bankruptcy case first, then pay the insider afterward so the trustee can't avoid the tranfer.

If she makes $130,000/yr, then unless she has a LOT of kids at home, she will not likely qualify for Chapter 7 and will instead have to file Chapter 13 due to the Means Test, which is a payment plan. Realistically, it may be better for her to settle the $50,000 rather than file bankruptcy. With her income, she may well wind up in a 100% plan, which means she makes enough money that the court will likely make her pay the entire $50,000 back. If this happens is not saving much by filing bankruptcy; she may just be trading interest for attorneys fees. However, if she settles the unsecured debts, she may be able to settle for around 40% and save herself 60% of the debt load (though there are debt consequences for the forgiven portion of the debt).

Let me know if you have other questions and I will try to help you! I hope this helps and a positive feedback is always appreciated if this was useful to you.

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above (c) by Joseph Ross, all rights reserved.

Customer: replied 5 years ago.

If I don't call her a friend will it make a difference? I have a promissory note drawn up by an attorney, but he does not specialize in BK.

 

Since retirement accounts can't be liquidated to pay off debts in BK, wouldn't a loan be looked at the same way. 401K loans can't be written off in BK.

 

I have been told if she takes a loan out against the 401K and waits 90+ days to file the trustee will not come after the money. You are saying a year. Is that a clear cut policy or is it subjective? Is there any case law that will indicate what a trustee will do?

 

She has 3 kids and lives in a condo she bought on land contract. Both her and her ex are pharma reps. The attorney she met with is "the man" in the BK world here in Dayton and told her she could file chap 7. But she has proven to be full of shit, so who knows.

Expert:  JoeLawyer replied 5 years ago.
It is subjective in my opinion, but click here to view the actual definition of "insider" from the Bankruptcy Code (scroll down to (31)).

If she has 3 kids, then that constitutes a household of 4 people, and 4 people can make around $74,000 or so (that's not exact, its off the top of my head from memory of what it is in Indiana, which has similar amounts to Ohio). If "the man" found some massive expense she can claim to squeak into Chapter 7, then great, but it is awfully tough to get someone making $130,000 with 3 kids in Chapter 7. Maybe she is full of it regarding her income (i.e. maybe she makes less than she told you), or maybe she is claiming the debt is business debt rather than consumer debt, which gets one around the Means Test.

In any case, for "insiders" it is one year, for other creditors it is 90 days. If you are not a lending institution, then it is likely the trustee will consider it a preference in my experience, but maybe not since this may vary from jurisdiction to jurisdiction and I practice on jurisdiction to the west of Ohio.

Click here to view the code section on preferences.

Any more questions, let me know!

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above (c) by Joseph Ross, all rights reserved.
Customer: replied 5 years ago.

Do you think it is best to contact a BK attorney in Dayton for help moving forward? If so, do you have anyone you could recommend?

Customer: replied 5 years ago.

Also, last question I promise, is it 90 days or 1 year from the date she actually files? If her appt with the atty is Feb 18, how soon could the paperwork be filed?

 

You have been so much help, thank you very much!!

Expert:  JoeLawyer replied 5 years ago.
Sorry becca I lost internet last night for some reason :/

Yes - it is 90 days/1 year from the date her bankruptcy petition is filed.

I know some attorneys in Columbus, OH, and I went to law school in Cincinnati, but I don't really know any in Dayton, so I don't really have any to recommend.

Any more questions, please let me know!

LEGAL NOTICE: I am only licensed to practice law in certain state(s) and I cannot give legal advice to someone who does not reside in a state in which I am licensed, nor shall anything I say in the above answer or elsewhere on this site be deemed legal advice, even to someone who resides in a state in which I am licensed. Fees I receive for answering questions are paid for information, not for legal advice. This forum is designed to provide general information only, and information herein is not warranted to be correct or applicable in any way since laws may have been misinterpreted herein, since laws change from time to time, and since the impact of those laws on any particular situation varies. The information presented in this site shall not be construed to be formal legal advice nor the formation of an attorney-client relationship. Persons accessing this response are encouraged to seek independent legal counsel in their jurisdiction for guidance regarding their individual circumstances. Do not take any action or inaction based on information presented herein since it is informational and may not be accurate or applicable to you; it merely attempts to give you a basis of knowledge to help you formulate questions to ask a legal or other professional in a face-to-face meeting in your jurisdiction. Joseph Ross does not hold himself out to be a specialist or expert in any area, regardless of assertions made by any third party, and any implication of being an expert or specialist herein is made in error. I hope the information presented above is useful to you. Answer above (c) by Joseph Ross, all rights reserved.

JoeLawyer, Attorney
Category: Bankruptcy Law
Satisfied Customers: 767
Experience: Attorney in the practice of Bankruptcy Law since 1996
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