December 15, 2019

Should You Pay Back Your Parents or Siblings Before Filing Bankruptcy

Should you pay back your parents, siblings, friends or other relatives before filing bankruptcy?  I get this question frequently as many of the potential clients I see have borrowed money from private sources in an effort to avoid bankruptcy.

My Bankruptcy Law Network collegue Susanne Robicsek answers this question clearly and consisely in a 2007 post on the BLN blog.  Susanne’s advice remains valid – do NOT pay back a personal loan prior to filing bankruptcy without first talking to a bankruptcy lawyer.

There are two potential issues if you pay back mom or dad, or the next door neighbor.  First, there is the problem of “preferences.”   Congress recognized that debtors would be tempted to favor certain creditors in a pre-bankruptcy setting.   The bankruptcy code contains a section that addresses so called “preferential” payments on old debts. [Read more…]

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