Can I Repay My Friends or Relatives before Filing Bankruptcy?

If you owe money to friends or relatives, they are likely to be in the same rank of unsecured creditors
with your credit card companies. One of the duties of a trustee in bankruptcy is to make sure that all unsecured creditors are treated equally (i.e., while they are behind secured creditors in rank, they rank equally among themselves). If you repay your friends or relatives, or other “insiders” while not paying your other creditors, the transfer may be considered a “preference” and the bankruptcy trustee may”avoid” or reverse the transfer.

While the court looks back 90 days from the filing date for payments made to non-insiders, there is longer look-back period for payments made to “insiders,” or people who have a close relationship with you because they were not dealt at arm’s length.

If you are thinking about filing bankruptcy, you need let your attorney know about all payments made
prior to filing to discuss how best to protect you or your family and friends. 
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The Bankruptcy Code gives you property exemptions, because it recognizes that in order for people to move forward after bankruptcy, people have basic needs. If a property is exempt, it can’t be used to pay your creditor’s claims.

The information contained on this site is for general education only and it is not, nor is it meant to be, legal advice.  You should seek advice from a bankruptcy attorney for your specific situation.