You may find yourself in the position of having many creditors hounding you to pay off your debts, and it may be tempting to agree to pay off one of them. This could be especially true if the person you’re paying off is a family member.
If you decide to payoff a loan from a family member (or any lender, for that matter), you could find yourself in an uncomfortable position.
Payments made to regular creditors in excess of $600 within 90 days of filing your bankruptcy petition are considered preferential payments. If you make payments to an insider – generally a relative or business associate – the court will look back for the year before you file to see if you have made any preferential payments.
What will the bankruptcy court do if you have made such payments? It depends. But in the worst case scenario, the trustee could force the creditor (including that family member who gave you a loan) to hand the money over and distribute among all of your creditors. You may find yourself having to pay back that loan twice to keep things smooth between you and your relatives.
This is just one of the complexities of the bankruptcy process for which you might want to consider hiring a lawyer. Not disclosing such payments could also backfire and result in criminal prosecution or dismissal of your bankruptcy case.
