One of the biggest concerns my clients have is what to do about the money they owe their family. People are often concerned about their friends and family knowing about the bankruptcy and worry constantly about how they will be viewed.
This concern leads some people to pay back their family members before they file for bankruptcy. This is dangerous. On the Bankruptcy petition, in several places, you are asked whether you have repaid any creditors in the time leading up to your filing.
I have seen this go poorly for many people. The fundamental principle of the Bankruptcy Code is that your creditors should be treated equally. So, the guy who paid his father back $20,000 to reimburse him for helping to buy a home is in trouble. Yes, the father loaned money to his son. But the credit card creditors, medical creditors and others also loaned him money.
You get the picture here. Some people will have a small sum of money that cannot get them all the way out of debt. The Debtor will often use this sum to pay off one of their favorite creditors. If you have a good attorney, you’re going to ask him or her about this before you do it. You’re going to get some advice and it’d be nice to follow it.
What your attorney is probably going to tell you is that you should not pay back your family members before the bankruptcy. If you do, you’ll have to list that payment on the petition and that’s a whole other mess. The Bankruptcy Trustee has the power to go after your family member to recover that money. If the goal was to make your bankruptcy go smoother so your family would not become involved, your payment to them has directly involved them.
You need a good bankruptcy attorney in San Jose to help you through this. Often times, the small sum of money you have can be protected through the bankruptcy process, allowing you to pay your family afterwards. There is nothing wrong with paying your creditors back after bankruptcy. You can pay anyone you want. Paying off family and friends before hand can be a dangerous move and is one I would not advise a client to undertake.
Luckily for you nothing you read on the website can be confused with legal advice…