Q: Ex seeking Chap 13. Owes me equity thru DD/P Note. If she pays me w/ proceeds from home sale can trustee sue 4 it back?
Our Divorce Decree from 10 years ago has my ex owing me 1/2 the equity in the home she lives , as assessed at that time, plus interest, which has come due this year. A few years ago, I let my ex do a refinance without having to pay me back, but in order for them to approve it, they wanted my lien resulting from the DD removed, so my ex and I executed a promissory note mirroring the wording in the DD. Now she has a bankruptcy lawyer contacting me to see if I will work with them to lower what she owes me because he has recommended she file Chap 13 & that they will hold off filing until after the sale of the home so she can pay me some of what she owes me. The lawyer told me regardless of if I make a deal with my ex or not that she will be filing for bankruptcy either way. I'm concerned that if I receive a payment from her from the net proceeds of the sale of her home that a bankruptcy trustee will seek it back from me because it may be viewed as a preferential payment. Is this likely so?
A:
If your ex files a chapter 13 case, the chapter 13 trustee does not pursue the collection of a preferential transfer. Instead, the chapter 13 debtor is required to pay the amount that a chapter 7 trustee would be able to pay unsecured creditors had she filed a chapter 7 case and the trustee sued you to collect the preference. In performing the "liquidation test" the debtor's attorney is able to deduct the chapter 7 trustee's fees and expenses in determining what she must pay in the chapter 13 plan.
This would become a problem for you if your ex converts her chapter 13 case to a case under chapter 7. If the note calls for payment to you upon the sale of the home, you may have a defense that the payment was made in the ordinary course of business.
If your ex waits at least 91 days after she pays you funds from the sale before she files her bankruptcy case because a payment on a debt to a person that is not an insider must be paid within 90 days to be a preference. As an ex-husband, you are no longer an insider.
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