I field a chapter 7 last year, through an attorney. After three 341 meetings, the trustee filed Notice of Assets with court in June, 2010. It’s been 4 months since the notice of assets, my attorney told me just wait. However, my former debtor received a demand letter from trustee stating “it appears that some transaction was fraudulent. To avoid a lawsuit, discuss payment plan” The trustee asked my former debtor for the money($5000) I paid debtor years ago. Why the trustee do this? I felt it is a trap because trustee wants to squeeze money from everywhere. Can my former debtor just ignore the demand letter? What should I or my former debtor do?
My attorney said he cannot be the debtor’s lawyer. Is he right?
It's difficult to understand what you're asking because you are misusing terms. If you filed a bankruptcy case, YOU are the debtor. People you owe money to are called creditors. When you say that the trustee asked a former debtor for money, I don't know what that means. If you meant that the Trustee requested money that you paid to a creditor within 4 years prior to filing your bankruptcy, the facts probably indicated that the money was transferred by you without receiving reasonably equivalent value (in other words, you basically gifted the money away). If this is not true and you were, for example, repaying a loan or something, then the creditor should be able to easily prove this and that would end the inquiry.
If your attorney represents you, then he is the debtor's lawyer. He cannot represent a creditor of yours and you at the same time. That is a direct conflict of interest. It doesn't get more conflicted than that.
Mark J. Markus, Attorney at Law
The reason a Trustees does any particular thing is because 1) the job is to collect assets to pay your creditors and 2) Bankruptcy law allows the Trustee to undo any payments to creditors made before the bankruptcy was filed. The reason the law allows this is called "preferential treatment." Before fililng bankruptcy, some people try to outsmart the system by paying off family members or friends so they won't have to include them in bankruptcy. Other times, they may pay off debts on accounts they would like to keep open, falsely believing that if the account balance is $0 when they file, the creditor will let them keep this line of credit once the bankruptcy is over. Unfortunately, most creditors find out about the Bankruptcy anyway & cancel the account.
Bankruptcy law requires that all creditors be treated equally according to their status as secured, priority or unsecured creditors. Any creditor that received a large payment or payoff when others in the same classification did not, received an unfair advantage over the other creditors & the Trustee's job is to repair that problem by seeking the return of the money you paid to be distributed fairly to all creditors. The Trustee would do the same thing if a creditor garnished your wages.
Hope this makes things clear. I have addressed this problem in my video, "The 5 Things you must Never do if you want to file Bankruptcy." See the following link.
Your attorney is right, one attorney can not represent both you and someone to whom you paid money. That person, who should be referred to as a creditor, needs to respond back to the trustee within the specified time with no intervention at all by you or your attorney. That individual certainly may seek their own legal advice, but they need to respond to the trustee.
Where one debt is paid and others are not, depending on the timing and the amounts, this is what the bankruptcy law calls "preferential" payment. Without knowing all of the facts of your bankruptcy case I can not comment in further detail. But, your duty is to cooperate fully with the trustee, allow any administration to go forward, and hopefully all will go well and you will get a discharge. Instead of questioning what your attorney tells you I highly advise that you listen to your attorney.
I truly wish you the best.
This answer is provided for informational purposes only. Actual legal advice can only be provided in an office consultation by an attorney licensed in your jurisdiction, with experience in the area of law in which your concern lies.
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