Can I Pay Family Members Back Before or After I File Bankruptcy in New York City?

It’s very common for people who have fallen behind on their bills to turn to family for help.  When times get tough most of our clients in New York City would prefer to repay their family before the credit card companies, but if you are considering bankruptcy this could cause some trouble when filing.

You will likely run into the problems of “preference” or “fraudulent conveyance” if you have paid a family member a lump sum payment or monthly installments in the last six years before filing for bankruptcy in New York.   It doesn’t mean you are a criminal, but it may allow the bankruptcy trustee to sue your family member to bring more money back into the bankruptcy estate.  This can obviously create a very negative family dynamic, and keeps many people from getting the bankruptcy advice they need.

Don’t panic if you have already paid a family member back and now believe you may need to file for bankruptcy.  The trustee will have to prove you deliberately transferred the money to keep it for yourself or to intentionally keep it out of the hands of your creditors.  It’s not a slam dunk.  Rest assured the laws in New York City are on your side and are designed to protect people who may have made an innocent mistake like this.  A qualified bankruptcy attorney will know how to handle the situation, but it’s important to bring this issue up during your initial bankruptcy consultation.

When you file bankruptcy and receive a discharge the debt you owe your family will likely be eliminated along with all of your other toxic debts.  Legally you will no longer owe the money, and won’t be responsible for paying it back.  However, since most of us care about keeping a good relationship with our family we don’t want to “stiff” them just because the bankruptcy court says we can.  Fortunately there is no penalty for voluntarily repaying your family member after your bankruptcy case is finalized.   Once your case is discharged you can pay back whoever you wish without any trouble from the bankruptcy trustee.  The certainty that family ties will be saved allows many of our clients to move forward with the bankruptcy protection they need.

Every case is different, but if you think you need to file for bankruptcy and may have already repaid family on a loan do not delay seeking the advice of a qualified attorney.   The financial stress you are under is bad enough; let your attorney worry about protecting your assets and repaying your family.  If you live in New York City and are facing this problem please give the Law Office of William Waldner a call at 212-244-2882 or contact us online today for a free bankruptcy consultation.  As of 8/31/16 we maintain a 99% Chapter 7 discharge record in New York City, and offer affordable bankruptcy assistance for all New Yorkers.

This article is intended for educational purposes only. By reading this article no attorney-client relationship has been created.