Don’t Set Your Family up for a Lawsuit

Did you know that if you repay money you owe to relatives before you file your bankruptcy in Syracuse, you may be setting them up for a lawsuit?

Kathryn (fictional example) borrowed $2,000 from her parents to help buy some Christmas presents for the kids and pay the electric bill and past due rent. She usually gets a substantial tax refund and promised to pay them back when it arrived.

However, Now Kathryn Needs to File Bankruptcy.

If she pays her parents back before she files, her parents will be sued to recover the money she paid them.

Paying Your Relatives First in This Situation Is Called a “Preference.”

  • Creditors convinced congress that it was not fair for people who file bankruptcy to pay some creditors prior to filing bankruptcy but not all creditors.
  • Congress included in the bankruptcy code a “preference” section which allows the trustee to go after preferred creditors.
  • For relatives, the trustee can recover funds paid up to one year prior to the filing of the bankruptcy.
  • For other creditors, the trustee is limited to 3 months.

In other words, if you pay a non-related creditor within 3 months of the time you file bankruptcy any amount over $600, the trustee can sue that creditor and get the money to put towards paying all creditors.

So What Do You Do?

You need to pay back your relatives.

Preserving family relationships is important.

The Best Answer Is to Wait until After You File Bankruptcy to Repay Them.

Your tax refund money can likely be protected in a bankruptcy. After your case is settled, you can then use that money for anything you’d like. This way, you can file now and not wait a year or worry that the trustee will sue your family.

For a free consultation about your own bankruptcy case, contact our office today.


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