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  1. #1
    Join Date
    Jul 2012
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    14

    Default Pension Loan

    My question involves bankruptcy in the state of: NJ
    I am considering bankruptcy. I've read that sometimes the trustee can and will sue a family member if they were paid back. Is there anyway around this. I paid a family member ($20,000) back using a pension loan about 6 months ago which I will continue to pay even through the bankruptcy if approved? If it's a loan that can't be touched in bankruptcy, how can they sue a person for it?

    Any insight would be helpful.

    Thank you,

  2. #2
    Join Date
    Sep 2010
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    19,421

    Default Re: Pension Loan

    A family member is going to be considered an insider, but if the payback was six months (actually the cutoff is typically three months) before the filing, they are generally safe.
    If you paid them closer to the filing (or after it was filed), it would indeed be bad for you (you may lose bankruptcy protection) and for them (the court may order the improper payments returned).

    The pension loan is protected, but that's immaterial. The issue is an improper payment to an insider regardless of where you got the money to pay them.
    Understand this is not about being fair to YOU or to your RELATIVES. It's about protecting the creditors you're about to SCREW. The trustee represents their interests.

  3. #3
    Join Date
    Sep 2010
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    475

    Default Re: Pension Loan

    If you are filing a Chapter 7, to protect the family member (insider) from a claim to recover the loan payback as a preference you need to wait 1 year from the last payment made. Anything paid within 1 year prior to filing can and will be recovered by the Trustee.

    Des.

  4. #4
    Join Date
    Oct 2006
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    15,932

    Default Re: Pension Loan

    Quote Quoting despritfreya
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    If you are filing a Chapter 7, to protect the family member (insider) from a claim to recover the loan payback as a preference you need to wait 1 year from the last payment made. Anything paid within 1 year prior to filing can and will be recovered by the Trustee.

    Des.
    Even when the money paid was based on a loan that must be repaid, bankruptcy or not?

  5. #5
    Join Date
    Sep 2010
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    475

    Default Re: Pension Loan

    Quote Quoting llworking
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    Even when the money paid was based on a loan that must be repaid, bankruptcy or not?
    The pension loan needs to be repaid, NOT the loan to the insider.

    OP borrowed money from a pension plan and then elected to use that money to pay a family member ergo there is a preference if the bk is filed within 1 year of the payment to the insider. The insider will be attacked by a Trustee. OP could step up to the plate and work a settlement with the Trustee to protect the insider but it is a recoverable preference one way or the other.

    Des.

  6. #6
    Join Date
    Jul 2018
    Posts
    1,960

    Default Re: Pension Loan

    Quote Quoting formyboys
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    I am considering bankruptcy. I've read that sometimes the trustee can and will sue a family member if they were paid back. Is there anyway around this.
    Depends on the relevant facts and circumstances.


    Quote Quoting formyboys
    View Post
    I paid a family member ($20,000) back using a pension loan about 6 months ago which I will continue to pay even through the bankruptcy if approved?
    Despite your use of a question mark, this sentence is not a question. If you intended a question, I cannot discern what you intended to ask. For what did you pay this family member back? Can you be any more precise than "about 6 months ago"? Also, "family member" could mean a lot of things, so the specific relationship may matter.


    Quote Quoting formyboys
    View Post
    If it's a loan that can't be touched in bankruptcy, how can they sue a person for it?
    Huh? I have no idea what you mean by "loan that can't be touched." No one wants to "touch" a loan. If you made a preference payment (and it's not clear that you did), then the bankruptcy trustee may be able to seek to recover that for the benefit of the bankruptcy estate. You'll still have the loan obligation, which won't be impacted whatsoever (I'm not sure whether your obligation to repay a "pension loan" will or won't be discharged in the bankruptcy).

    Obviously, this is something you should discuss with your bankruptcy attorney.

    Quote Quoting despritfreya
    View Post
    Anything paid within 1 year prior to filing can and will be recovered by the Trustee.
    I disagree with the "and will" part of this. Just because the trustee can do it doesn't mean he/she necessarily will. Bankruptcy trustees ignore low-hanging fruit all the time.

  7. #7
    Join Date
    Sep 2010
    Posts
    475

    Default Re: Pension Loan

    Quote Quoting pg1067
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    I disagree with the "and will" part of this. Just because the trustee can do it doesn't mean he/she necessarily will. Bankruptcy trustees ignore low-hanging fruit all the time.
    Been doing this for over 30 years. I have never seen a trustee "ignore low-hanging fruit" when that fruit amounts to $20k but, great minds can differ.

    Des.

  8. #8
    Join Date
    Jul 2018
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    1,960

    Default Re: Pension Loan

    Quote Quoting despritfreya
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    Been doing this for over 30 years. I have never seen a trustee "ignore low-hanging fruit" when that fruit amounts to $20k but, great minds can differ.
    Happened to me earlier this year, and I've seen it happen multiple times over the past 20+ years. It's possible that the trustees where I live/practice are more lax than those where you live/practice.

  9. #9
    Join Date
    Sep 2010
    Posts
    475

    Default Re: Pension Loan

    Quote Quoting pg1067
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    Happened to me earlier this year, and I've seen it happen multiple times over the past 20+ years. It's possible that the trustees where I live/practice are more lax than those where you live/practice.
    That's pretty sad. Wonder how many of those trustees have contacted their bonding company due to the breach of their fiduciary duty to creditors.

    Des.

  10. #10
    Join Date
    Oct 2014
    Posts
    7,614

    Default Re: Pension Loan

    Quote Quoting llworking
    View Post
    Even when the money paid was based on a loan that must be repaid, bankruptcy or not?
    I agree with despritfreya that the source of the money the OP used to make the loan to the insider is not relevant here. He could have used his pension loan for anything, but instead elected to use it to pay off part of the loan he had with the relative. And that's a preferential payment to the relative when made within the year before filing the bankruptcy petition.

    And most pension loans technically don't have to be repaid. With the typical pension loan the pension trust is not going to sue to get that money back, after all. Rather, what happens is that if the loan is not repaid in time the pension trust will treat it as a distribution from his/her pension of the amount that was outstanding. So failure to pay would result in taxable income to the OP and perhaps a penalty for early distribution from the pension.

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