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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
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Experience:  Bankruptcy professor.
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I am filing a chapter 7 in Arizona. As a sales person that

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I am filing a chapter 7 in Arizona. As a sales person that travels on business for my employer I incur expenses such as airline tickets, hotel stays, rental cars etc. I am an authorized user on a credit card account my brother has and have been charging my business expenses to that card. I then pay my brother for charges incurred in that billing cycle in full each month with the money I am reimbursed for by me employer. This card never carries a balance from one month to the next. He of course then pays the card balance in full each month. Our agreement is that as long as I pay the full amount of my business charges I can contiue to have access to the card and use it for my business charges. My question then, are these payments to my brother for the past 10 months going to be considered preferential? If so, do I have a reasonable defense under the ordinary couse of business if the trustee goes after this? Thank you in advance for your input!!
Submitted: 4 years ago via Cornell Legal Info Institute.
Category: Bankruptcy Law
Expert:  cfortunato replied 4 years ago.
H

Edited by Christina Fortunato, Esq. on 8/1/2010 at 6:25 PM EST
Expert:  cfortunato replied 4 years ago.
Hi JACustomer,
Approximately how much have you been paying monthly for this credit card bill?

Customer: replied 4 years ago.

I am paying an average of 1500.00 per month for expenses. One month may be 2500.00 and another only 1200.00 or 900.00. I always pay whatever the balance is in full for any given month and always have.

Expert:  cfortunato replied 4 years ago.
Last question - are you making the payments to your brother, or directly to the credit card company?
Customer: replied 4 years ago.
The agreement is between my brother and I as I have no legal resposibility to the credit card company. He and I established our own agreement.
Expert:  cfortunato replied 4 years ago.
Since you are paying the charges you are incurring on your brother's credit card in full each month, those payments would be treated as ordinary business expenses, and would therefore not be subject to a preferential treatment analysis.
Customer: replied 4 years ago.
By the way my expense checks are totally seperate from my income and I have always physically cashed them without depositing them. I give my brother a cash payment for the credit card balance and he inturn deposits that cash to his account and writes a check to the credit card company. Do I have to state the payment to him on the bankruptcy petition or can I consider them payments under ordinary course of business of the financial affairs of the debtor being me? I guess similar to a utility bill?
Expert:  cfortunato replied 4 years ago.
If you are not self-employed, and if the expenses you incur for your employer are paid in a separate check, you do not have to report this re-imbursement - either as payments from your employer to you, or from you to your brother - on the Bankruptcy petition, because this payment is not income.

Edited by Christina Fortunato, Esq. on 8/1/2010 at 7:28 PM EST
Customer: replied 4 years ago.
I guess what I am asking is under statement of financial affairs section in the petition #3 Payment To Creditors part C would I be required to list payments to my brother? I am filing a joint return married under chapter 7. There is statement in that section that reads ("Married debtors filing under chapter 12 or chapter 13 must include payments by either or both spouses whether or not a joint petition is filed, unless the spouses are sererated and a joint petition is not filed.") would that mean in a chapter 7 that this requirment would be different as I am the one that pays my brother the payment not my wife. Additionally, if none of this is listed there would not be a potential problem to deal with. if something did come up we have a perfectly logical explanation under the ordinary course of business or financial affairs of the debtor. Would those be your thoughts as well if you were representing a case like mine? this is my last question!!! thanks in advance.
Expert:  cfortunato replied 4 years ago.
Just want to make sure - do you receive a W-2 form every year, or do you receive a 1099 (independent contractor)?
Customer: replied 4 years ago.
I receive a W-2 form and will not receive any filing or other documentation regarding my reimbursed expenses They are in the form of a totallly seperate check with no withholdings etc. associated with them. The expense reimbursement check reimbuses me for what I have directly spent on company business. It is not treated as income in any way.
Expert:  cfortunato replied 4 years ago.
If I were filing your Bankruptcy, I would not include those re-imbursement checks anywhere in the petition, because they are not income, and they are not debts. I would treat them as if they did not exist.
Customer: replied 4 years ago.
I swear last question!! what about the payments I have made to my brother. Would we have to list those in the petition under financial affairs section 3 letter C? That could potentially expose me to a preference claim that is unjustified. What are your thoughts and how would you proceed? Thank you!!
Expert:  cfortunato replied 4 years ago.
Last question also: are you just cashing the employer's check, or are you depositing it in your bank account before paying your brother?
Customer: replied 4 years ago.
I am just cashing the check. It does not go into a bank account.
Expert:  cfortunato replied 4 years ago.
So, that is the end of it. If it went into the bank account, and if the trustee wanted to see your bank account statements (usually only when there are no paystubs), you might have to explain those deposits. This cannot happen if the check is being cashed and then directly transferred to your brother to pay the employment expenses.

Edited by Christina Fortunato, Esq. on 8/1/2010 at 8:18 PM EST
Customer: replied 4 years ago.
You are correct. The only thing I am trying to get worked out right now is that my attorney upon initial discussion thought that we might have to list the payments to an insider on the petition. If that is required I would expect the nice trustee to immediately jump on that as a preferential payment because he can, not because of what the particulars are surrounding those payments. what do you think?
Expert:  cfortunato replied 4 years ago.
If they are listed, they will be treated as necessary business expenses, and will therefore not be treated as preferential payments.
Customer: replied 4 years ago.

would that be notated under the section asking me to list all payments made to insiders within one year. Financial Affairs Section of the petition item #3 subsection C? Can the attorney put special notes in with it in order to explain those payments?

Expert:  cfortunato replied 4 years ago.
I am going to opt out of this question, and send it back for someone else to answer, because I would not list this payment - since I don't view it as income or as an expense.
Customer: replied 4 years ago.

Thank you so much for your help!! Do I need to click on the accept answer button now or wait for the other response.

Expert:  cfortunato replied 4 years ago.
Please hit the "ACCEPT" button when you are completely satisfied with your answer - so you should wait for another response.
Customer: replied 4 years ago.
Thanks Again Christina you have been extremely helpful!!!!
Expert:  cfortunato replied 4 years ago.
You're welcome!

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