prior to filing for chapter 7, can i use my savings to pay for my parent's mortgage and then file for chapter 7? will this be frowned upon that instead of paying my debt im using my money to pay for a mortgagae that isnt mine?i live inthe home and was hoping to prepay the mortage monthly payments instead of paying my creditors. is this something the trustee would have aprobelem with? my name is not on the mortgage.
No, you can't. Any monies paid on another's debt would be considered an improper payment, and the trustee will take the money back to redistribute to other creditors. Don't make any such payments.
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This is called a preference. Where you pay one creditor over another and it is a big no no in bankruptcy. Especially when it is an insider (relative). The trustee can demand the money back or even worse sue to get the money back from the mortgage company and or the parents.
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Do live in the home? Do they live in the home?
If you live in the home and the payment is for rent - you might be able to do this without an issue. You were paying a debt, but you were also paying. It would probably come down to whether the payment was fair market value.
I have never litigated the issue but it could be argued this way.
Please contact me directly with document for a free 30 minute consultation to get more concrete advice. This is not legal advice. I don't have enough information to give actual legal advice. I can only take the limited information presented and provide a framework to know how your situation may turn out. I may have questions that bring up issues you did not think were important but make a big difference.
Any payment made to or on behalf of a relative within a year of filing bankruptcy is legally presumed to be fraudulent transfer of your assets. As the others have stated, the bankruptcy trustee could sue your parents or the mortgage company to recoup any such payment. There may be an exception to this outcome. When filing bankruptcy in the State of Illinois an individual may protect up to $4,000 in personal property from the claims of one's creditors. That amount increases to $8,000 in the case of a married couple. If the payment on behalf of your parents and your other assets do not exceed these cut offs then there should be no adverse reprecussions. It is unlikely that the trustee will pursue the recovery of the funds since you could ultimately apply your personal property exemption and protect those funds from the claims of your creditors. Incidentally, that same level of protection will apply to the cash sitting in your bank account. Therefore, if the savings account balance and your other assets do not exceed $4,000 your bank balance will not be in jeopardy in the event you file for bankruptcy.
unfortunately, the payment that you use from your own account for your parent's mortgage will be scrutinize by your trustee as a fraudulent transfer. However, depending on whether or not you are living at your parents home and your financial circumstances at the time of such transfers may affect whether or not the Trustee will have a claim under fraudulent transfer. Consult a local attorney to advise you based on your specific facts of your case.
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