I loan a family member a large sum of money a year ago. Now this family member is filing for bankruptcy and has ask for my name and address and the amount borrowed from me. According to the family member the courts can list this as a debt owed and I would be included in this repayment plan. Is this true? I did not think personal debt owed to family and friends could be file under bankruptcy.
– Alice

Jonathan Ginsberg responds:  Alice, when someone files bankruptcy, he must list and include all debts, including debts owed to family members. There is no exception for family members.

In fact, if your relative had paid you back within a year of filing, there is a good chance that the bankruptcy trustee would demand that you return the money as a "preference."

If your relative is filing a "repayment plan," it means that he is in a Chapter 13 bankruptcy. Assuming that the loan you made was a "handshake" loan, then your claim would be unsecured. In Chapter 13 case, unsecured debts are paid after priority (taxes, child support) debts and after secured (cars, houses, furniture) debts. You may not get a check from the Chapter 13 trustee for two or three years. You also may not get paid at 100% as many Chapter 13 cases call for less than 100% payouts to unsecured creditors.

When you get the bankruptcy notice, you will see a Proof of Claim form included in the letter. If you want to get paid something, even if you won't see any money for a few years, you need to fill out this proof of claim and send it to the Clerk of Bankruptcy Court.

Finally, be aware that the automatic stay of bankruptcy prohibits you from trying to collect your money outside the bankruptcy process. You do not, however, have to send this relative Christmas cards or invite him over for dinner!

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