St. Louis Bankruptcy Attorney: Insider Repayment

 

Often, individuals who are struggling financially and falling behind on their bills, repay a family member, a friend, or a business associate they owe money to.  This may create a big problem if the individuals file bankruptcy shortly after making that repayment. 

 

The Bankruptcy Code was created by the U.S. Congress with the intent of stopping and discouraging individuals who file bankruptcy from paying back individuals they have a close relationship with such as a relative, friend, or business associate at the expense of other creditors.

 

If such insider repayment is made within 365 days prior to the filing of the bankruptcy, then the bankruptcy trustee has the legal authority and duty to the creditors to recover funds from the friend, relative, or business associate who has received the debt repayment within the twelve months prior to the filing of the client’s bankruptcy.

 

In a Chapter 13 bankruptcy case, the client must either repay over the life of the Chapter 13 Plan to unsecured creditors the amount equal to what was repaid to the family member, friend or business associate or subject the relative, friend or business associate to being forced to pay to the Trustee  the sum paid by the client within the 1 year prior to case filing.

 

In a Chapter 7 bankruptcy case, the insider paid back by the client within the 1 year before filing, may need to immediately return to the Chapter 7 Trustee, the amount of money paid by the client within the year prior to bankruptcy filing or subject the “insider creditor” to being sued by The Trustee to recover those funds.

 

For example, let us imagine that a client who is deciding to file bankruptcy with a bankruptcy attorney repays a friend, relative, or business partner $10,000.00 owed to that person on May 1, 2012. The client would then be required to wait until May 1, 2013 to file a Chapter 7 bankruptcy in which the insider creditor would not have to give back the $10,000 for distribution to creditors.

 

If you're suffering financially, before you give money to pay back a friend, relative or business associate, then you may want to consider filing for bankruptcy relief and schedule a consultation with a bankruptcy lawyer.

Chapter 13 Bankruptcy, Chapter 7 or Debt Settlement

Based on what I have witnessed recently, I would strongly encourage anyone thinking about entering into a debt settlement program to think about filing for bankruptcy first.

Bankruptcy will not be the best option for a few people, but for most people dealing with a debt problem, bankruptcy will be the best option.

Why? Because with many debt settlement programs, particularly those that don’t offer debt settlement overseen by an attorney, the debt settlement company may take thousands of dollars of fees before any funds paid by the client would be set aside for a settlement with the creditors. 

Even at that point it may take years to settle some debts in a non-attorney backed debt settlement program.  I’ve seen clients before they come to see me pay thousands of dollars to non-attorney backed debt settlement programs without having any of their debts paid.  

Now, one thing you might not have thought of is that not everyone qualifies for relief under Chapter 7 bankruptcy, and high income Chapter 13 bankruptcy clients might have to repay 100% of credit card debts in their Chapter 13 bankruptcy.  

Attorney-backed debt settlement for a single person with no dependents with  a six figure income and $10,000 in credit card debt would likely  be preferable to bankruptcy, whereas a single person with no dependents, $35,000 per year in income and $10,000 in credit card debt would likely be better off filing bankruptcy.

I do offer debt settlement services as alternative to bankruptcy for those for whom it is appropriate.  But I am careful not to recommend debt settlement for those who are better off filing for bankruptcy relief and vice versa.   

If you had a medical condition, you would probably want to explore the different types of treatment available for your condition and obtain the advice of a medical professional before choosing your treatment.  The same principles apply if you are dealing with a debt problem; you owe it to yourself to explore the different debt relief options so that you may choose the option which is best for you.

St. Louis Bankruptcy Attorney Tips: Debt Relief and School Loans

 

Many Americans are painfully aware of how much college tuition rates have skyrocketed in recent years.  Tuition rates continue to increase to a degree far in excess of the inflation rate.  

 

A professional degree such as a law degree, medical degree, or dental degree is often still an excellent investment.  Other degrees, however, are sometimes not a good investment.  The job markets are flooded with college graduates and some high paying jobs such as sales jobs may require no college degree.

 

Also, many small business people succeed very well without a college degree.  My advice for those contemplating incurring student loan debt is to carefully evaluate the expected return on investment before signing for student loan debt.

 

Why? Since October 17, 2005 no student loan debt may be discharged in bankruptcy unless the client shows he or she would suffer “undue hardship” if not granted a discharge of the student loan debt. The bankruptcy client would need to file a separate proceeding within the bankruptcy case to have any chance at discharging the debt. 

 

The courts have generally determined that the Undue Hardship Test is not met unless the person has developed a disability after the student loan debt was incurred which completely prevents the client from practicing the trade or profession the client took out the student loans to prepare for or the client is of advanced age, that is beyond the normal retirement age, and owes a substantial amount of student loan debt.

 

A Chapter 7 client of mine a few years ago was able to discharge over $100,000 in student loan debt taken out for a professional degree program she had entered after she had retired from her first career while in her mid-50s.  This client was able to meet the undue hardship test although she wasn’t disabled and to obtain a discharge of her student loan debt, but she was over 65 years old, owed over $100,000 in student loan debt, and had been unable to obtain professional licensure related to the educational program she had taken out the student loan debt for.

 

I see many clients who took out student loan debt, which I would not have encouraged them to take acquire, who won't be able to discharge these debts in bankruptcy even though they can’t reasonably afford to repay them.  Education is great, but there are often less expensive alternatives than the most highly ranked program a person is able to attend. 

 

As a St. Louis bankruptcy attorney who has had clients saddled with enormous student loan debts, I would advise you to choose an economical option for obtaining necessary education, and be very careful about signing for student loan debt because it’s very unlikely you would be able to discharge any student loan debts in bankruptcy.