Should Paying Back Debts From Family and Friends Be on Your To-Do List Before Declaring Bankruptcy?

Should Paying Back Debts From Family and Friends Be on Your To-Do List Before Declaring Bankruptcy?

When faced with financial difficulties, many people turn to their friends and family members first. Of course, it is easier to borrow money from family and friends than it is to get a loan from a bank or credit union. What happens if what they provide you is not enough to alleviate your financial difficulties?

What you need to know is as follows:

Debts owed to family members are lawful. However, if you file for bankruptcy, they will not take precedence over any other debt obligations you may have. If you are thinking about filing for bankruptcy, you would be making a mistake if you paid off the debts from family and friends first. In the eyes of the court, this amounts to prioritizing debt, which is often frowned upon.

When you file for bankruptcy, allow the bankruptcy court to prioritize your debt level. The court mandates equal treatment of all debtors, even close family members. Before filing a lawsuit, if you repay loved ones and the court disapproves, they might demand that your loved one pay back the money. Afterward, the court may distribute the funds to your other creditors.

This is referred to as a clawback.

How Can the Court Tell if I Paid Off a Personal Debt?

Some people believe that they may pay back the money they borrowed from loved ones without the court ever finding out. Bankruptcy fraud is a crime, and disguising assets or payments is no exception. It is a federal offense punishable by jail time and fines. Anyone contemplating filing for bankruptcy should be aware that the bankruptcy court will undertake a detailed inquiry into their financial situation. There is a good chance they will figure it out.

However, regular payments you are required to make in the months leading up to your filing are not subject to clawback. Paying your automobile or house loan at this period is not an issue for the court. That is not the case if you have paid off your car loan, for example, but not your other bills.

It is important not to exceed the minimum payment on a loan in order to prevent trouble.

Before Declaring Bankruptcy, is There Any Acceptable Way to Repay Your Loved Ones?

Debts to loved ones are handled by the court in the same manner as other debts. Because of this, you are not legally obligated to pay back your friends and family members.

If you decide to reimburse them once your bankruptcy is over, you are free to do so. After bankruptcy, many people have more money to repay their loved ones since their other obligations are discharged. But if you pay them before filing, you may be unable to fully take advantage of the bankruptcy benefits.

Adam Law Group

Before you file for bankruptcy in Florida, you should consult with one of the experienced bankruptcy attorneys at Adam Law Group. We can answer your inquiries concerning debt prioritization and bankruptcy in general. You may reach us at 904-467-4773.