Bankruptcy – Family Members as Creditors

Most often, I write about bankruptcy issues when I see a debtor in a problem that if dealt with properly before a bankruptcy case has been filed, could have been avoided.

Today was one of those days. At the mundane 341 meetings, I saw at least 2 debtors walk blindly into the trustee’s question; “have you recently paid back a family member for a debt?” Both times the debtor got nailed, and they didn’t even know it. The attorney’s silent cringe, and the trustee’s “gotcha” facial expression told all. At least to me. But I’ve been doing this for way too long. The debtor had no idea. Their thinking was probably that is was ok to pay a family memebr for a debt before filing. But it’s not.

I can only assume their attorney either didn’t deal with the issue pre-filing, or had no idea of it. But as an attorney, this is something that you can’t avoid knowing. So I can only assume that in-experience was the issue.

Payments to family memebrs before bankruptcy is an issue in bankruptcy that if not addressed appropriately pre-filing, could cause big problems, and it probably did for this debtor, because the amount paid was large.

The payment to family member problem raises a few issues in bankruptcy. At the top of this list is: 1. is you family member a creditor? The second: 2. Is it going to be a problem that you paid them instead of your other creditors. 3. If you paid them a lot, where did you get the money?

First, your family member is considered a creditor in the eyes of the bankruptcy court. They will be treated just like Wells Fargo and Chase.

Second, it is an issue if you paid your family member back a debtor before you filed your bankruptcy case. All creditors in bankruptcy must be treated the same. So if you’re paying your Uncle Bob back instead of Bank of America, there is a problem. If you did this within a certain time period and then filed, there is a chance that every dime you paid your Uncle Bob could be reveresed by the court, and then divided evenly amoungst your creditors.

I cannot stress enough that these are issues that can be dealt with before filing your case. If you have this sort of issue, you need to talk to an experienced bankruptcy lawyer. Today I saw 2 different lawyers that let their clients get nailed with this. Now these clients are probably going to have to cough up all the money they paid their family member.

Don’t let this happen to you. Be honest and forthcoming with your lawyer, and make sure that the bankruptcy lawyer you choose has lots of experience in bnkruptcy.

Call us for a free consult. 480-355-1377.