My bankruptcy trustee sued my mother because I paid her back before I filed bankruptcy. What are her options?
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.
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.
If the bankruptcy trustee sues your mother for a preferential transfer, your mother has three options:
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: Rebecca K. McDowell, Contributing Author