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FiveStarLaw, Attorney
Category: Bankruptcy Law
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Experience:  Bankruptcy Lawyer. Experienced.
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I am in Ohio and I received a letter from a Bankruptcy Trustee

Customer Question

I am in Ohio and I received a letter from a Bankruptcy Trustee stating that I received 1500.00 payment within 90 days of a person(s) filing bankruptcy. However, it was owed to me since I had sold her a car. It is complicated. On 4/7/09, I had a Bill of Sale typed and we signed and had it notarized stating she would pay 100.00 a week until she paid it off. I also had a lien on the vehicle at the time too which, was recorded on the same day. Then she took over payments on another car I had and decided to trade in both cars in around the middle of September 2009 and the lien was then lifted when the original car was traded in. She agreed to still pay the remaining balance of 1500.00 on the car when she got her taxes in February 2010, which she did. She also filed bankruptcy that same month. So, I need to know if the trustee will be able to see when the lien was lifted? Or since we traded the car in and the lien was lifted do I have to pay the trustee 1500.00 even when that was owed to me by the purchasers? Please let me know. I don't know what I should say or do and he told me I need to response within ten days or he will file a motion to recover the funds which I don't have anymore. :(
-Liz
Submitted: 4 years ago.
Category: Bankruptcy Law
Expert:  FiveStarLaw replied 4 years ago.
Hello,

So sorry to hear of your dilemna. I will strive to provide you with legal information to assist you.

I am a lawyer with 25 years experience. Although I am not your attorney, I hope that I can give you helpful legal information on this open and nonconfidential forum.

The trustee is referencing avoidable preference. Let me explain.

A transfer of the debtor’s assets to a creditor that results in a creditor receiving more than the creditor would have in a Chapter 7 bankruptcy, is typically considered a “preference". This is true even though the debt was legitimately owed. The trustee will be able to determine when the lien was lifted

Bankruptcy Code §547 provides for the avoidance of preferential transfers within 90 days before the bankruptcy filing date for third parties. Transfers to insiders (including a business partner) are subject to a longer avoidance reach back of one year.

Bankruptcy Code §547 is attached in full to the end of this post.

I hope that the information which I provided was helpful to you.



Section 547. Preferences.
(a) In this section—
(1) “inventory” means personal property leased or furnished, held for sale or lease, or to be furnished under a contract for service, raw materials, work in process, or materials used or consumed in a business, including farm products such as crops or livestock, held for sale or lease;
(2) “new value” means money or money’s worth in goods, services, or new credit, or release by a transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the debtor or the trustee under any applicable law, including proceeds of such property, but does not include an obligation substituted for an existing obligation;
(3) “receivable” means right to payment, whether or not such right has been earned by performance; and
(4) a debt for a tax is incurred on the day when such tax is last payable without penalty, including any extension.
(b) Except as provided in subsections (c) and (i) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5) that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
(c) The trustee may not avoid under this section a transfer—
(1) to the extent that such transfer was—
(A) intended by the debtor and the creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and
(B) in fact a substantially contemporaneous exchange;
(2) to the extent that such transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee, and such transfer was—
(A) made in the ordinary course of business or financial affairs of the debtor and the transferee; or
(B) made according to ordinary business terms;
(3) that creates a security interest in property acquired by the debtor—
(A) to the extent such security interest secures new value that was—
(i) given at or after the signing of a security agreement that contains a description of such property as collateral;
(ii) given by or on behalf of the secured party under such agreement;
(iii) given to enable the debtor to acquire such property; and
(iv) in fact used by the debtor to acquire such property; and
(B) that is perfected on or before 30 days after the debtor receives possession of such property;
(4) to or for the benefit of a creditor, to the extent that, after such transfer, such creditor gave new value to or for the benefit of the debtor—
(A) not secured by an otherwise unavoidable security interest; and
(B) on account of which new value the debtor did not make an otherwise unavoidable transfer to or for the benefit of such creditor;
(5) that creates a perfected security interest in inventory or a receivable or the proceeds of either, except to the extent that the aggregate of all such transfers to the transferee caused a reduction, as of the date of the filing of the petition and to the prejudice of other creditors holding unsecured claims, of any amount by which the debt secured by such security interest exceeded the value of all security interests for such debt on the later of—
(A)
(i) with respect to a transfer to which subsection (b)(4)(A) of this section applies, 90 days before the date of the filing of the petition; or
(ii) with respect to a transfer to which subsection (b)(4)(B) of this section applies, one year before the date of the filing of the petition; or
(B) the date on which new value was first given under the security agreement creating such security interest;
(6) that is the fixing of a statutory lien that is not avoidable under section 545 of this title;
(7) to the extent such transfer was a bona fide payment of a debt for a domestic support obligation;
(8) if, in a case filed by an individual debtor whose debts are primarily consumer debts, the aggregate value of all property that constitutes or is affected by such transfer is less than $600; or
(9) if, in a case filed by a debtor whose debts are not primarily consumer debts, the aggregate value of all property that constitutes or is affected by such transfer is less than $5,000.
(d) The trustee may avoid a transfer of an interest in property of the debtor transferred to or for the benefit of a surety to secure reimbursement of such a surety that furnished a bond or other obligation to dissolve a judicial lien that would have been avoidable by the trustee under subsection (b) of this section. The liability of such surety under such bond or obligation shall be discharged to the extent of the value of such property recovered by the trustee or the amount paid to the trustee.
(e)
(1) For the purposes of this section—
(A) a transfer of real property other than fixtures, but including the interest of a seller or purchaser under a contract for the sale of real property, is perfected when a bona fide purchaser of such property from the debtor against whom applicable law permits such transfer to be perfected cannot acquire an interest that is superior to the interest of the transferee; and
(B) a transfer of a fixture or property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee.
(2) For the purposes of this section, except as provided in paragraph (3) of this subsection, a transfer is made—
(A) at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected at, or within 30 days after, such time, except as provided in subsection (c)(3)(B);
(B) at the time such transfer is perfected, if such transfer is perfected after such 30 days; or
(C) immediately before the date of the filing of the petition, if such transfer is not perfected at the later of—
(i) the commencement of the case; or
(ii) 30 days after such transfer takes effect between the transferor and the transferee.
(3) For the purposes of this section, a transfer is not made until the debtor has acquired rights in the property transferred.
(f) For the purposes of this section, the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition.
(g) For the purposes of this section, the trustee has the burden of proving the avoidability of a transfer under subsection (b) of this section, and the creditor or party in interest against whom recovery or avoidance is sought has the burden of proving the nonavoidability of a transfer under subsection (c) of this section.
(h) The trustee may not avoid a transfer if such transfer was made as a part of an alternative repayment schedule between the debtor and any creditor of the debtor created by an approved nonprofit budget and credit counseling agency.
(i) If the trustee avoids under subsection (b) a transfer made between 90 days and 1 year before the date of the filing of the petition, by the debtor to an entity that is not an insider for the benefit of a creditor that is an insider, such transfer shall be considered to be avoided under this section only with respect to the creditor that is an insider.
Customer: replied 4 years ago.
Thanks for the information. Just to clarify a few spots. If I told I bankruptcy trustee that the car was still under the lien what can happen? I am her personal friend and I don't own a car lot or nothing and was letting her make payments on the car. She got behind on payments so I told her when she got her income tax check she could pay me. Is there some loop hole? I understand the "preference" part; however we had a binding contract that she owed me the money. Is there anyway where I would not be liable to pay the 1500.00 to the courts?
Expert:  FiveStarLaw replied 4 years ago.

If I told I bankruptcy trustee that the car was still under the lien what can happen?

If you intentionally misstated the information to the trustee, you can be criminally prosecuted for bankruptcy fraud. However if you misunderstood the law and "thought" the lien transferred onto the car, there would likely be no criminal prosecution

I am her personal friend and I don't own a car lot or nothing and was letting her make payments on the car. She got behind on payments so I told her when she got her income tax check she could pay me. Is there some loop hole?
Unfortunately not

I understand the "preference" part; however we had a binding contract that she owed me the money.
Unfortunately the Code applies even where a legitimate debt is owed

Is there anyway where I would not be liable to pay the 1500.00 to the courts?

unfortunately it does not appear that there is however you may want to meet with local counsel to review the situation


Sorry
FiveStarLaw, Attorney
Category: Bankruptcy Law
Satisfied Customers: 36646
Experience: Bankruptcy Lawyer. Experienced.
FiveStarLaw and other Bankruptcy Law Specialists are ready to help you
Customer: replied 4 years ago.
Thanks for you help. I just don't understand how I can be liable for this money when it was owed to me and I had no part in her filing bankruptcy.

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Expert:  FiveStarLaw replied 4 years ago.
So sorry. Many people and businesses are surprised by the same scenario

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