If I loaned money to a friend who committed bank fraud (I had to wire the money within minutes of having received the call from the friend directly to the Bank's fraud recovery department) and that friend subsequently files Chapter 13, is it safe to assume that I have no recourse but to wait in line with other unsecured creditors?

Of course, I did not want the person to go to jail and did not obtain any promissory note or security agreement at the time the funds were wired to the bank's fraud recovery department.

I have not yet obtained a promissory note and mortgage as I assume it could now be disallowed by the trustee because the money was disbursed in mid-February and I'll bet there's a "consideration" issue now.

What do you recommend?  Is it too late to get a note and/or secure the debt.  The friend has yet to file Chapter XIII yet.

Would there be any priority in my payment becuase I kept the person out of jail?

–Michael

Jonathan Ginsberg responds:  Michael, as you said in your email - "no good deed goes unpunished."   I do not represent creditors so I would advise you to find a lawyer who regularly represents creditors in Chapter 13 claims.  Typically lawyers who represent used car dealers or high risk vehicle finance companies would have a lot of experience regarding possible objections to Chapter 13 cases since they file objections all the time .

I have no doubt that creditor lawyers and Chapter 13 trustee attorneys read this blog - perhaps one of my colleagues at the bar could post a comment or email me with more insight.

Your predicament serves as an important lesson to anyone who ever considers loaning money to friends or family.  If you make these loans, especially in an emergency situation, be prepared to lose the money, your friends or both.

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