I repaid my mom before bankruptcy. Can the trustee take that money back?

Related Ads

Need Professional Help? Talk to a Lawyer

Enter Your Zip Code to Connect with a Lawyer Serving Your Area

searchbox small

Question:

My bankruptcy trustee sued my mother because I paid her back before I filed bankruptcy. What are her options?

Answer:

A bankruptcy trustee can file a lawsuit within your bankruptcy case to recover money from third parties in certain circumstances. If you owed your mother money and paid her a large chunk of that money within one year before filing bankruptcy, the trustee may be able to get that money back.

Preferential Transfers

A preferential transfer, also sometimes called a preference payment, occurs when you prefer one creditor over another and then file bankruptcy.

To recover a preferential transfer, the trustee will sue the creditor who received the money by filing an adversary proceeding. And adversary proceeding is a lawsuit filed within the bankruptcy case.

Options If the Trustee Sues You for a Preferential Transfer

If the bankruptcy trustee sues your mother for a preferential transfer, your mother has three options:

  • File an answer to the complaint and litigate the lawsuit. To respond to a preference complaint, your mother must file an answer with the court. Once the answer is filed, the court will set hearing dates and deadlines for discovery (collecting evidence) and filing certain motions (making requests to the court). Your mother can also settle the lawsuit after filing the answer; if she doesn't settle, the lawsuit will conclude with a trial, at which time the judge will enter a verdict either ordering your mother to pay or ordering that the trustee cannot avoid the transfer.
  • Settle with the trustee. Your mother can settle with the trustee either before she files an answer or after. The trustee may decide that settling for less than the amount of the transfer will be more cost-effective to the bankruptcy estate than litigating to trial.
  • Ignore the lawsuit. This is an unwise choice. If your mother ignores the preference lawsuit, the court will enter a default, and the trustee will obtain a default judgment against her for the full amount the trustee asked for in the complaint. The judgment will collect interest, and the trustee will be able to collect on the judgment using methods approved by state law, including garnishing her wages and levying her bank account.

Example 1. Your mother receives a summons and complaint for recovery of a preferential transfer with a deadline of 21 days to file an answer. The trustee is suing her for the $10,000 you repaid to her six months before you filed bankruptcy. She retains an attorney and files an answer on time. The case will either settle or proceed to trial.

Example 2. Your mother receives the complaint for $10,000; however, instead of filing an answer, she calls the trustee's office and offers him $5,000 to settle. After they go back and forth, they agree on a settlement of $6,500. The trustee notifies the court and dismisses his complaint.

Example 3. Your mother receives the complaint and ignores it. The court enters a default judgment in favor of the trustee in the amount of $10,000. The trustee files the judgment in state court and obtains a garnishment, which allows him to take money out of your mother's paycheck and bank account until the judgment is satisfied.

by: , Contributing Author

Talk to a Bankruptcy Lawyer

Start here to find bankruptcy lawyers near you.
HOW IT WORKS
how it works 1
Tell us about your case
how it works 2
Get matched with local lawyers
how it works 1
Connect with your lawyers
LA-NOLO2:DRU.1.6.3.6.20141124.29342