If you have borrowed money from friends or family you likely feel a duty to pay them back. That’s understandable. But if you are filing for bankruptcy it is important that you not do anything before filing that will harm your case. Paying back money you owe friends before filing for bankruptcy can harm your case.
You can always pay back your friend after your bankruptcy case is over.
Why shouldn’t I pay back money I owe a friend before filing for bankruptcy?
Payments made to creditors prior to filing for bankruptcy are scrutinized by the Bankruptcy Trustee assigned to your case. Bankruptcy law puts restrictions on the preferential treatment of creditors, which is paying back one creditor over another prior to filing.
Payments made to “insiders” are more heavily scrutinized. Insiders include your friends, family, business partners, and basically anyone with whom you have a personal connection.
How long before bankruptcy are payments to insiders reviewed?
The length of time payments or other transactions are reviewed prior to filing for bankruptcy is known as the “look-back period.” The look-back period for payments made to creditors is one year prior to the date your bankruptcy case is filed. 11 U.S.C. § 547.
What are the potential consequences of paying back a friend before filing for bankruptcy?
Your friend may have to turn the money over to the Bankruptcy Trustee.
The Trustee assigned to your case has the power to avoid (to reverse) a preferential payment. Effectively this means the trustee could seize funds from the friend you paid back prior to filing for bankruptcy.
Paying back a friend prior to filing is not illegal on its face, though if it is done with the intent to defraud other creditors or hide money, that is a crime.
Can I pay back my friend after filing for bankruptcy?
Yes. Nothing in the bankruptcy law precludes you from paying back friends, family, or any other creditor once your case is over. While you will have no legal duty to do so, you can back your friend after your bankruptcy case is over.
How can I learn more about how bankruptcy can help me?
Come meet with us for a free consultation. When you leave our office you will know what your debt relief options are. You will know if bankruptcy is a viable solution to your debt problem. We strive to ensure that after meeting with us you will know how filing for bankruptcy would affect you and your family, as well as the benefits and the drawbacks of bankruptcy.
To better understand the benefits bankruptcy offers, we invite you to read our article Living With The Stress of Debt vs. Bankruptcy.
We’re here to help you through your bankruptcy case from start to finish. Contact us or call (912) 351-9000 to explore how bankruptcy can help you! We offer free consultations to anyone looking to explore how to get out of debt.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code. Find out more about Bankruptcy in our guide: All About Bankruptcy.
