Q: Does successfully cashing a previously bounced NSF debtor's check during a ch7 bankruptcy violate the automatic stay?
My Ex took $1000 that did not belong to her. She claims the taking was in error. She wrote a check to repay the $1000 which bounced due to NSF. She told me she was stopping payment on the check and filing bankruptcy. She demanded I return the check to her. I refused unless she signed a payment schedule, which she did not. She then filed ch7 bankruptcy. About 10 days later, without being given notice of the bankruptcy, I successfully cashed the repayment check. Now my Ex's lawyer demands I repay my Ex the $1000 she took.
A: It appears to me that, since you didn't know if the bankruptcy filing when you cashed the check, you have not violated the automatic stay.
A: You may not have violated the stay, depending on whether you were listed as a creditor in the bankruptcy and what sort of notice went out. However, the money you received was part of the bankruptcy estate if the check cleared after the case was filed, and it is plausible that the bankruptcy trustee can and will demand it from you.
A: If you knew of the bankruptcy filing when you cashed the check, then yes, it violates the stay. If you did not know of the filing when you cashed the check, then no, no violation!!
A: I believe you have violated the automatic stay as you state you were aware she was filing for bankruptcy before you cashed the check, the debt was unsecured and even though you were not given formal notice, you were put on notice and had an obligation to research first. Even if you did not violate the automatic stay, the payment to you was a preference (payment to an insider within one year prior to filing) and can be avoided. While a demand letter may have come from the Debtor's attorney, you should contact the trustee and offer the funds to him/her as technically the trustee is the one to pursue preference actions in a chapter 7 on behalf of the estate. Good luck!
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