#6 of 33 Things Not to Do When You Are About to File for Bankruptcy

Posted by on Sep 8, 2014 in Bankruptcy | 0 comments

#6 of 33 Things Not to Do When You Are About to File for Bankruptcy

Don’t pay back money to family members before you file.

 

Family members have a special category in bankruptcy:  they are considered “insiders” and paying them back within a year of filing for bankruptcy is called a “preference.”  The bankruptcy trustee on your case can go back to those family members and take the money back that you paid them.

 

You may think, “How is the trustee going to find out?”  I’ve heard stories from other attorneys (and seen at hearings) that there might be another bitter family member who didn’t get paid back and they will contact the trustee to complain.  Always tell your attorney if you’ve paid another family member money you owed them.  The attorney can decide if you need to wait to file, or can advise you how to let that family member know that the trustee might be contacting them.

 

Many people think, “Well, I’ll pay my mom/dad/brother/cousin back before I file; then they won’t be stuck never getting paid.”  Don’t do that.  If you want to pay them back after you file for bankruptcy, that’s fine (in a Chapter 7).  You are allowed to pay back anyone you want.  You are just not legally obligated to pay them after your bankruptcy is discharged.

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