Preferential Payment Situation

baled_2

Hi.

My brother went bankrupt in April 09. In Sep 07 I loaned him £2000 which was a personal loan I arranged with my own bank to then give to him. The condition of this loan was that as soon as my brother sold his house he would pay me back in full which he did in June 08, adding £100 as a thank you gesture, so the total he repaid me was £2100. I then repaid the balance of the loan to my own bank in full. At no point during this time did we have any idea my brother would end up going bankrupt 10 months later.

In Nov 09 my brother's OR wrote to me stating that as I had been given preferential payment I would have to pay the OR £2100. With the help of the Citizen Advice Bureau I wrote to the OR and informed him I could not afford to repay this sum as I am a single parent working part time and that it was a loan I had arranged with my own bank in the first place.

I received a reply stating again that it was a preferential payment and that the demand for repayment still stood but that my letter would be forwarded to Moon Beever. I have just received a letter from Moon Beever today demanding the payment of £2100. I quote:

"We would be obliged if we could receive your proposals to pay £2100 to this firm by no later than 23rd February 2010.
Should satisfactory proposals not be made within this time period, we would have to advise our client to issue proceedings for £2100 interest thereon and the costs of the action."

I am going to send Moon Beever the same letter I sent the OR - that I cannot afford to pay it. Now I know the OR is legally entitled to demand this money (God knows they've repeated it enough times to me) but can anyone who has been through this situation or knows someone who has advise me what the likely outcome will be? I went to Citizen Advice again just before Christmas and they advised me to make some sort of offer of payment, at least monthly. I only want to do this as a last resort to be honest, but I definitely don't want a CCJ or to be made bankrupt which apparently they can do because the sum is over £750.

If anyone can give me any sort of advice about this, I'd be eternally grateful. Thanks.

fiveyearplan

I don't think anyone on here has ever heard of someone being taken to court, although that can happen - I remember someone quoting this last week. I would also state that it wasn't a preferential payment as he just stuck to the terms of the loan. Was he making regular payments to his other creditors at that time? If so, use that as a bargaining chip too.

baled_2

Thanks fiveyearplan. As far as I know my brother didn't stop paying other creditors when he repaid me, it's just that even after he sold his house he still owed quite a large amount to the banks and credit cards. He did try an IVA first but when this didn't work out he went bankrupt which he was advised was best for him at the time.

The most frustrating thing about this situation is not knowing of any precedents which may give me pointers as to the best way to state my case. Also, how am I supposed to know what constitutes 'satisfactory proposals' as Moon Beever puts it? Are they at least required to obtain my income and expenditure details before taking further action? Should I put this informaton in my reply to them? I feel so in the dark about all this. I think I will contact CCCS tomorrow, although when I rang them originally the upshot of their advice was that I can't be forced to pay back what I don't have which doesn't seem to be quite true now.

InnerPeace

Hi Baled, they can issue a Claim for the money but unlikely given the amount. If you tell them you can't afford it they will send you income and outgoing forms to complete.

Did your brother pay any other creditors in full too? Although he'd agreed to pay you back in full when the house was sold he also had other creditors expecting to be paid too, so in paying you he preferred you...did he have any other creditors that were demanding full payment also? It doesn't matter that he didn't intend to go bankrupt then, insolvency is assumed as you are a relative. Stress with MoonBeever that it was agreed you'd be repaid when the house was sold, some OR offices place more importance on that fact than others.

Can he prove that he was solvent at the time to rebut the presumption of insolvency? Could he afford all his repayments and domestic outgoings from his income or have assets of greater value than his liabilities?

baled_2

Hi Innerpeace. Thanks for your info, I appreciate it. My brother also paid our older brother and a friend in full (they've also received letters from the OR and Moon Beever) but I'm not sure if any other creditors received full payment. He did still have a hefty amount of debt when he sold his house (I think approx £40K but I could be wrong) which he tried to sort out afterwards through an IVA initially, so I presume he can't prove he was solvent at the time he paid me. The house was his only real asset at the time but I think a lot of the proceeds from the sale went into paying off the mortgage too. From the start, it was a verbal agreement that he would pay me back in full once the house was sold which my brother told the OR when he had a meeting with him a couple of weeks ago. The OR seemed to accept this explanation at the time but who knows?

Do you know if it would make any difference that I actually had to borrow the money myself to help out my brother?

InnerPeace

Hi Baled, I'm afraid it dosn't make any difference how you came by the money in order to lend it to your brother. The fact that the only other people he paid were friends and family doesn't help I'm unfortunately. In the eyes of the law all creditors should be treated equally.

Your brother could still be regarded as solvent if he had enough income to maintain his creditor repayments and his domestic outgoings.

Was the house on the market when you loaned the money and were you repaid quite quickly afterwards? It's a factor that may help. Otherwise simply state that you can't afford to repay it and let them know what your income and outgoings are, and the amount of any savings etc. If there's no chance of recovering the money they'll write it off.

baled_2

Hi. I would have to check with my brother when he put the house on the market. I think part of the money I leant him was going towards getting it ready for sale. He did pay me back not long after the sale went through.

Do you know if I have definitely have to declare any savings? According to a debt supervisor at CAB, in this situation I don't have to. I have just over £1000 in a savings account which is a backdated tax credits payment and I absolutely don't want any of this going to the receiver as it's my daughter's 18th soon. Are they allowed to use benefit money towards repayment?

nervousmother

I dont know if this will help or scare you but we had a similar situation:
MIL lent my EX £3k in 2007 to pay a vat bill. In 2008 when we sold a house he paid her back in full, he also paid the tax man in full, and a load of other debts. At this point BR was never a option. Begining of 2009 we had to go BR.

The Trustee said this was a prefferential payment to MIL even though we could prove we were paying other creditors. He was prepared to take her to court to recover the money from her. She is 70 years old, although we were prepared to stand up in court and argue it was not prefferential we did not think it was fair that she would have to defend it, so we offered him £750 to drop it. We borrowed the money off SIL and they accepted it and took it no further.

They may not have taken it to court at all, but we did not want the risk, what im trying to say is if worse comes to the worse try to bargin with them.

baled_2

Thanks for your response nervousmother, your post does help me a lot.

To me it beggars belief that a 70 year old can be threatened with court action over £3000 but I suppose I shouldn't really be surprised. It's interesting they accepted a quarter of the original amount. I have a feeling that in the end I will be forced to pay something back but I'll offer them the bare minimum I can afford every month, even if it takes years to pay off.

InnerPeace

Moon Beever will ask for the information that they want so you don't need to volunteer anything that they don't ask for. They might well accept a much smaller sum or repayments or decide to write it off because it's not worth the cost of monitoring repayments or pursuing.