Who Is Defined As an Insider When Filing Bankruptcy?

The question of whether a creditor is a considered an “insider” in a bankruptcy case is an important distinction. When you repay one creditor and not others, it is considered a “preference” because you are providing special treatment to a single creditor. All creditors of the same priority need to be treated equally under bankruptcy law. Therefore, when you pay one person or one entity and not others, the bankruptcy trustee has the right to avoid that transaction and bring the money back into your bankruptcy estate so that all your creditors will be paid a percentage. If a creditor is an “insider” and you paid them all or a portion of the debt within one year prior to filing for bankruptcy, the bankruptcy trustee may avoid the transaction as a preference under 11 U.S.C. §547(b). The preference period for a normal creditor (like credit card companies) is 90 days versus one year for an insider, because insiders are more closely scrutinized.

If you have repaid a creditor a significant amount of money before your bankruptcy case is filed it is important to find out if they are considered insiders and talk to your bankruptcy lawyer about the payment in detail. 11 U.S.C. §101(30) defines an “insider” to include a relative of the debtor or a general partner of the debtor. 11 U.S.C. §101(45) defines “relative” to mean an individual related by affinity or consanguinity within the third degree as determined by the common law, or individual in a step or adoptive relationship within such third degree. This means that if you borrowed money from your sister, she is considered to be one of your creditors. If you repaid your sister $10,000 six months before you file for bankruptcy, the trustee could avoid that transfer and sue your sister to bring the $10,000 back into the bankruptcy estate.

What if the relationship is a little unclear? What if you borrowed money from your “Aunt” Margaret who is a close family friend (but not relative) and has known you your entire life and would do anything to help you in your current situation? In addition to looking at the family ties, courts have also looked at whether there is a close enough relationship between you and the creditor (“Aunt” Margaret in this scenario) that your conduct should be scrutinized at more than regular arms length transactions. The courts look at whether the creditor would have any influence over you or exert any control over the situation. If the creditor does have control over you it is not considered to be an arms length transaction and the creditor would be defined as an “insider.” Some other factors that may be looked at to determine whether the creditor is an “insider” includes whether there was a written contract, whether any interest is being included in the debt and whether the creditor has any advantages based on the relationship. All these factors point to whether the transaction was made at arm’s length. If the transaction was made at arm’s length then the creditor is subjected to the regular 90 day preference period. If it was not at arm’s length then the creditor is treated as an insider who is subjected to the one year preference period.

Avoiding Bankruptcy and Availing Easier Debt Help

Have you taken loans and now you have not been able to pay them back in time? Have you now been buried under the heavy burden of loans you took, to pay back the previous loans but not in vain? Are you planning to download bankruptcy forms from the internet and file the petition? Have you searched for any information on how to file bankruptcy? If not, then stop right here. It may not be a good idea altogether.

This is because filing the bankruptcy is not at all easy and it requires a payment of around 700 pounds or more. You cannot pay the amount in installments and this will be another cost for you as well. Apart from that, for a whole period of 10 years, your credit history will suffer.

You should not at all go for this petition unless it is the only left thing to do. Look for all the solutions possible for the condition that you are facing. For example, if you want to help yourself on the credit card debts, you can apply the snowball technique for debt management.

Snowball debt management

In this technique, it is not necessary that you hire a good debt manager. You can apply this all on your own. You need to list down the amounts of all the credit card outstanding payments in an ascending order (not based on the interest rates). However if some amounts are same you can list them down based on the rate of interest in ascending order.

After that, you can start paying with the lowest amount of loan, with the disposable income you have every month. This will put a direct and instant effect on the total amount of the loan you have to pay with a psychological affect that you are able to pay for the loans.

Apart from that, you can also take help from the different debt management companies that can make a good debt management plan for you.

Debt management plan

A debt management plan is made based on the financial condition of the debtor. This helps the debtor to talk to the creditors in such a way that if they agree to the plan they have to lower down the amount of loan, which the debtor can pay with the interest rate lowered as well. The creditors then cannot bug the debtor.

The plan when ends, helps the debtor to get out of all the debt issues. If there are any outstanding debts, then they are written off. However, the creditors are not bonded to the agreement and they can reside from it at any point.

To know more about such alternatives and other options as well, you can log on to different websites. You can also get information on the online blogs and the forums on which many people have uploaded information regarding how to get out of debt issues. They provide help on the options like IVA, DRO, trust deeds, debt negotiation, and debt consolidation etc.

Financial Troubles That Lead to Bankruptcy Can Also Cause Divorce

As the moral character of United States continues to slide down the slope, it’s common to see a family filing bankruptcy end up in divorce. One emotion that comes into play in a bankruptcy filing is pride and when a family ends up filing bankruptcy, the blame game begins. In some cases, the financial trouble can cause the breakup of the family and gives them no other alternative but to file for bankruptcy. It’s one of those things that there isn’t a good answer for, what comes first the chicken or the egg? One thing is for sure, if a couple is going through both at the same time, it’s a good idea to try to work together and get through it. A bankruptcy attorney will usually advise their client to finish filing Chapter 7 bankruptcy before getting a divorce. When someone gets divorced, all the property and assets gets very convoluted and it becomes a hassle to decide who owes what. It’s best to have the couple on the same page so they can file Chapter 7 bankruptcy jointly and wiped out all unsecured debts the couple might have. This will allow them to go into their divorce with a clean slate.

Another issue arises when an individual is embroiled in a divorce, a bankruptcy attorney will not be allowed to represent both spouses because of a potential conflict of interest. This means that both will have to hire their own bankruptcy attorney and divorce attorney. At this time, it’s better to bury the hatchet and put your ego aside to get through the bankruptcy filing first. Some couples after filing bankruptcy will find out that they might be able to put the pieces together now that the stress of being buried under a mountain of bills is gone. In today’s society, this is more of a rarity but we can always hope for the best.

One of the leading causes that lead to divorce is finances, or the lack of. Taking the time to resolve any financial discrepancies before dealing with the divorce is wise. Many times, emotions run high and this is not possible, but if one of the two will extend the olive branch and eliminate their debt, a large burden will be lifted. There is no real reason to have to file bankruptcy individually if at all possible. In some cases, a bankruptcy attorney will still represent both parties as long as they agree on all aspects of the bankruptcy filing. The only problem with this is, the bankruptcy attorney will not be able to discuss any matters regarding the case without both parties present. If they are having trouble getting along, this will never work out. Over the last few years, many families have been broken up because of the extreme pressure being exerted due to bad economic conditions. In a time where families should hang together, most blame each other and run for the exits. Hopefully, as the economy continues to decline, American families will be able to pull it together.

Parents’ Debt Affects Kids

Stress has many causes but since the economic recession in 2007, financial instability is the major cause of stress. The economic recession led to increment in unemployment and inflation thus low income and loss of monetary value. The rampant increment of goods and services prices has made financial instability more rampant in the current world. Parents have to ensure their kids acquire the basic needs at all time since the kids are dependent to them. The expectations by the kids that the parents will always provide for their needs leads to parents acquiring unsecured debts. Unsecured debts for instance credit card debts have high interest rates and short payment periods that lead to stress among the parents, as they have to pay the debts and continue providing for their kids with their low income.

The parents tend to think that their financial stress does not affect their kids but many researches portray that parents’ stress affects about 91% of kids, since financial instability is one of the main causes of stress; I believe that parents’ debts affect kids.

Ways that Parents’ Debt Affects Kids

According to Lawrence M. Berger, a professor of social work at the University of Wisconsin-Madison, secured debts tend to affect children negatively. Unsecured debts lead to stressed parents, ultimately sabotaging everything positive you do as a parent. The aim of this paper is to illustrate the ways that these unsecured debts, such being credit card debts and the effect on kids. In the study authored by Lawrence, he portrayed that parents with unsecured debts had higher levels of debt thus making them stressed and depressed more than those without unsecured debts. Children whose parents had unsecured debts were illustrated aggressiveness, anti-social behaviors and stress; whereas those without unsecured debts did not show much emotional stress and erratic behaviors.

The ‘Growing Up’ in Ireland survey states that most of the parents do not reveal their financial instability stress to their kids thus most kids are unaware of their parents’ financial problems but the inability of the parents to deal or hide their stress makes the children feel insecure, alienated and sad thus resulting to emotional and psychological problems. These claims concur with Drew McWilliams, a clinician and Chief Operating Officer at Morrison Child and Family Services in Portland, who claims that children suffering from depression, anxiety and post-traumatic stress experience these conditions due to parental negligence.

Unsecured debts as earlier discussed tend to cause more anxiety and stress to the parents, the parents may tend to work more to pay the debts thus limiting the time they spend with their kids. The sudden change of events is hard for the kids to take thus they feel neglected. Parents’ poor stress management may result to spill it over to their kids by scolding them or physical abuse thus resulting to stress to the kids. Lastly, parents’ high level of debts may result to inability to provide for the kids what they are used to thus resulting to the kids feeling unwanted and anti-social due to the status of their friends.

Therefore, it is important for parents to understand that their kids are affected by their stress thus limit issues that may stress them more than they can handle or open up to their kids on their financial instability.

Use Emotional Intelligence to Get Out of Debt

We all know what Intelligence Quotient (IQ) is, but have you been hearing the buzz lately about Emotional Quotient (EQ)? Well, if you haven’t, then I’ll start with a basic definition from Psychology Today:

What Is Emotional Intelligence?

Emotional intelligence is the ability to identify and manage your own emotions and the emotions of others. It is generally said to include 3 skills:

Emotional awareness, including the ability to identify your own emotions and those of others;
The ability to harness emotions and apply them to tasks like thinking and problems solving;
The ability to manage emotions, including the ability to regulate your own emotions, and the ability to cheer up or calm down another person

In achieving financial freedom from debt, we can apply the same skills in sustaining our long term goals, or even short cutting the time and effort involved by finding the best possible solution for our particular concerns.

So, what does getting a hold of our emotions have to do with getting out of debt? Great Question and one that I looked at from a money making standpoint. In a recent article by Inc. magazine entitled, 12 Habits That Set Ultra Successful People Apart. The highlight of this article was a discussion on how the ultra successful people use EQ to get stuff done and you can too.

Here are some key tools to help you get out of debt:

Keep your composer by monitoring your emotions and what it feels like to have this much debt that you cannot manage. Remember that no matter what, this too shall pass. Focus on the outcome rather than the present mess, to carry you through.
Get informed and be knowledgeable. When you are constantly working on yourself to increase your own self awareness about how you earn, manage, and grow financially because you’re passionate about it, then, you’re ready to get out of debt completely. Gather all the information you need to make a well-informed decision for yourself.
Take your time and be deliberate in your decisions. Impulsiveness may have gotten you into financial trouble, but financial freedom from debt requires you to slow down and logically think through the problem.
Get a small victory under your belt quickly. Whether it is to contact your professionals for consultations, like your CPA or accountant, if you need tax advice; or a bankruptcy lawyer to consult about bankruptcy options to get out of debt.
Be Fearless and Graceful. Fear is imagination run wild. Fear is also what keeps many in the position of indecision and never make a move. Grab fear by the horns and be graceful, which is to be both strong and gentle at the same time.
Be gentle and kind on yourself first, for getting into debt and be strong enough to face fear, head on and get out of debt by the cheaper, better and faster way, for you.

I believe that money is a matter of the heart. I believe that the way out of debt is through our emotions. I believe that anyone can move out from a mountain of debt quickly when they unite their head and their heart together, as a team. It’s a simple shift from guilt and shame, to freedom and joy.

The Law Office of Christine A. Kingston is a Federal Debt Relief Agency. We help people file for bankruptcy under the Bankruptcy Code. Our practice is limited to Chapter 13 and Chapter 7 bankruptcies, student loans and debt settlement.