Legal Question in Bankruptcy in California

In short, yes, you have to comply with requests from the bankruptcy court. By indicating that you owe your in-laws $100,000, the in-laws have created a substantial nightmare for you. There are potentially two issues here. First, the $100,000 they claim you owe them is an asset in the in-law's bankruptcy case. As such, that asset is probably not exempt (protected from being liquidated in the bankruptcy), so the Trustee administering their case is going to try to collect that $100,000 from you and pay it over to the in-law's creditors.

The second issue which you do not raise specifically in your post, however, I can tell you where the Trustee is headed with his or her inquiry, is one of preference or fraudulent transfer. By selling you the house for what appears to have been less-than fair market value, and by virtue of your familial relationship with the in-laws, a Trustee has what are sometimes referred to as "claw-back" powers. You have probably heard or read about this term in the context of Madoff. Claw-back powers allow the Trustee to set aside, or undo a transfer of any type of property by your in-laws where it is legally deemed to have been a preferential transfer (the transfer of that asset to you was to the detriment of all of their other creditors), or worse, a fraudulent conveyance (transfer of the property to you for less-than fair market value in an effort to delay, hinder or defraud their other creditors). Simply put, if the transfer resulted in the in-law's creditors receiving less than they should have had the in-laws sold the property to an unrelated party for full fair market value, the Trustee can either force the set-aside of the sale to you, or force you to repay to the Trustee the value of what was transferred (the house). You should retain counsel right away, as any response to the Trustee needs to be properly framed from the beginning, or you may further complicate your situation. I have represented many clients in matters such as this, and would be more than happy to discuss this with you further.

*Due to the limitations of the LawGuru Forums, The Gibbs Law Firm, APC's (the "Firm") participation in responding to questions posted herein does not constitute legal advice, nor legal representation of the person or entity posting a question. No Attorney/Client relationship is or shall be construed to be created hereby. The information provided is general and requires that the poster obtain specific legal advice from an attorney. The poster shall not rely upon the information provided herein as legal advice nor as the basis for making any decisions of legal consequence.