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Roger
Roger, Attorney
Category: Bankruptcy Law
Satisfied Customers: 31022
Experience:  BV Rated by Martindale-Hubbell; SuperLawyer rating by Thompson-Reuters
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My wife is filing Chapter 7- recently paid off IRS and brought

Customer Question

My wife is filing Chapter 7- recently paid off IRS and brought mortgage current with tax refund that I just received. There are no other secured creditors and all the money was used for taxes and mortgage. Will trustee take back that money if my wife files Chapter 7.
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  Roger replied 6 years ago.

In community property states, spouses equally own all property earned or received during the marriage, splitting 50-50. In bankruptcy, then, all the community property you and your spouse own jointly is part of the bankruptcy estate, regardless whether you join in the filing. Your separate property -- property you owned before the marriage -- is not effected by your spouse's bankruptcy. Property held by your spouse will be used to settle debt first, and then non-exempt community property will be used.

 

Thus, in this particular instance, if the money that you used was jointly your money, the trustee could reverse the transactions and take that money to pay off your creditors on a pro rata basis.

 

It is not certain that the trustee will do this, but it is possible.

Customer: replied 6 years ago.

The money was used to pay IRS and Mortgage, our only two secured creditors. All other creditors are unsecured. Wouldn't they get priority in payment of any funds available. If that is the case, then we will file. If the Trustee can take the money away from either the mortage or IRS we will lose our home, it was about to go into forclosure.

I can't believe that the trustee could take money back from the IRS or Mortgage to pay unsecured creditors.

Expert:  Roger replied 6 years ago.
No, they would not have priority to get paid with your available funds. They would have the right to retake its collateral and sell it to pay down your debt. The remaining, unpaid amount would be an unsedured debt as well.
Customer: replied 6 years ago.
How long would we have to wait until it was safe to file without them coming back on the money
Expert:  Roger replied 6 years ago.
The lookback is generally 6 months, but can extend to a year if the transaction is considered fraudulent. However, that doesn't appear to be the case here.
Roger and 2 other Bankruptcy Law Specialists are ready to help you
Expert:  Roger replied 6 years ago.
There is also a 90 day preferential payment period. However, if you were paying standard debts, and not shifting assets, etc. this should not effect you.

The best thing to do is to go over with the particulars of your situation with a local atty before filing.

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