Should I Repay the Loan from My Parents Before I File?

Bankruptcy is based on the proposition that all similarly situated creditors are (or should be) treated equally.  In the eyes of bankruptcy, unsecured loans from friends and family members are viewed in the same manner as unsecured loans from credit-granting agencies (such as credit cards).  Friends and family members are viewed as “insiders” and any more than nominal payments made to them in the year prior to filing for bankruptcy must be disclosed during the case as a preferential transfer.  In that case, the trustee has the option of bringing suit against the insider who received the repayment in order to recover the payment for equal distribution among all your creditors.  So, while repaying your family before filing may feel like the right thing to do, it could be the worst thing you can do for them!  Please contact our office for more information about preferential transfers or to speak with an attorney about your specific circumstances.