My parents filed chapter 13 bankruptcy. Sold me their house for less than it's worth. Trustee wants to sue me for equity

Question

I took over payments on my parents house, and they added me to their mortgage in February of 2017. I paid their payments (to them and then they paid their mortgage) for a year. In February 2018 they signed a quit claim deed and I refinanced the house to remove their names and have the loan in my name, paying off their mortgage of $81,000. The house was appraised for $94,000. In November of 2018 they filed chapter 13 bankruptcy. The bankruptcy trustee tells them he is going to sue me for the equity unless I sign a waiver that my parents bankruptcy attorney drew up saying I waive my right to claim a defense of the 2 year Federal Statue of Limitations. The waiver says it relates to the possible preferential transfer involving the gift of equity in the Debtor's prior residence. It further says This waiver shall also apply to and benefit any successor Bankruptcy trustee in the event this case is either converted to or re-filed in Chapters 7, 11, 12, or 13. I don't want to sign this waiver!

Trent Harris · Answer

Trustee’s gonna trustee. Based on what you said, you bought a house from your parents for $13,000 less than it was worth in February 2018. If they were insolvent at the time, that could be a voidable transfer, and the trustee could file an adversary case to set aside the quit claim deed they gave you. You should have an attorney look at the facts with you, to see if you have any possible defenses to the preference action. If you do, maybe something can be done. If you don’t, you’ll need to try to make a deal with the trustee.  
 
As always, you get what you pay for. Be sure to talk to a qualified attorney about your specific situation before choosing to rely on information you get from internet discussion boards such as this one.

John Martin Hilla · Answer

Yes, you need to speak with a bankruptcy attorney of your own to obtain the best advice moving forward and to discuss possible defenses to what are called "preference avoidance actions." Long story short, any property sold or transferred by a debtor who files bankruptcy within 2, or even up to 6, years prior to the filing of the bankruptcy case for less than "equivalent value" is subject to being clawed back into the bankruptcy estate by the Trustee assigned to the case. Typically, this is something less of concern in a Chapter 13 than in a Chapter 7, where the Trustee has the power to seize and liquidate assets, but this Ch 13 Trustee certainly has an ability to spot a possible preference and to object to the confirmation of the Chapter 13 plan unless certain conditions are met.  
 
Your parents' bankruptcy attorney is going to be focused on THEIR case and THEIR interests. They are his client; you are not. You should seek your own counsel.

Thomas. R. Morris · Answer

You need to discuss this confidentially with an attorney, not on a public forum like this where the trustee can see your questions (and answers) and use them against you.

Timothy Denison · Answer

You should hire your own indeprndent counsel immediately to discuss your options.  Neither the trustee nor your parents attorney have YOUR best interests at heart.

Q: My parents filed chapter 13 bankruptcy. Sold me their house for less than it's worth. Trustee wants to sue me for equity