I Can Pay Back Granny Before I File, Can’t I?

No, and Don’t Borrow Money from Relatives.

 

Preferential Transfer

A preferential transfer in bankruptcy law refers to a transaction made by a debtor that gives preferential treatment to a specific creditor or group of creditors over others. This type of transfer can occur before the debtor files for bankruptcy and is governed by specific rules to ensure fairness in the distribution of assets.

The purpose of bankruptcy law is to provide a systematic and equitable resolution for the debts of an insolvent debtor. Preferential transfers can undermine this objective by allowing certain creditors to receive more than their fair share, potentially disadvantaging other creditors.

Avoiding Preferential Transfers

To address this issue, bankruptcy laws allow trustees or debtors-in-possession to avoid preferential transfers and recover the transferred assets. The recovered assets are then added to the bankruptcy estate and distributed among all creditors in a fair and equitable manner.

To determine whether a transfer is preferential, certain criteria are considered, such as the timing of the transfer, the relationship between the debtor and the creditor, and whether the transfer was made for an antecedent debt. By avoiding preferential transfers, bankruptcy laws aim to promote fairness and equality among creditors in the bankruptcy process.

Thoughts on Borrowing Money from Relatives

Remember, you’re likely not going to be able to “borrow” your way out of debt at this point. If you’re reading this and considering borrowing money from relatives, it’s probably for the purpose of paying other debt that isn’t getting paid, right? Borrowing money from relatives usually causes strain and stress on family relationships, and only leads to hard feelings down the road, if not paid back promptly. If your uncle is Bill Gates, you can ignore most of this advice of course. Generally speaking, though, it’s the old saying of not mixing business with family, neither should you do it with loans you cannot currently payback.  Simply put, you shouldn’t pay back friends or relatives before filing bankruptcy.

Debtor –   I paid my grandma, cause well, she’s my grandma
Bank –   “That’s not fair, and we don’t care if she is his grandma”

Debtor – “But she’s my grandma”
Trustee – “Great, tell her to give that money to me”

In the context of Missouri bankruptcy, borrowing from relatives causes significant issues if you have or are planning to pay those relatives back within a year of filing the bankruptcy. Simply put, if you are paying back Grandma, but not Mastercard, you’re going to have problems. If you did pay back Grandma, the guy from Mastercard is not the only one that’s going to have something to say. Under the Federal Bankruptcy Code, the trustee can recover such payments if they have been made within the past year. We don’t want Grandma getting sued now, do we?  Be sure to speak with your attorney to avoid any problems.

 

O’Fallon Location:
Markwell Law, LLC
1031 Peruque Crossing Ct, Ste. B
O’Fallon, MO 63366
636-486-1093
 

We are a debt relief agency according to law. We help people file for bankruptcy relief under the Bankruptcy Code. Of course, the choice of a lawyer should not be based on advertising or this website alone.

The use of this Website does not create an attorney-client relationship.

 

About the author 

Guss Markwell

Originally from St. Louis Missouri, I grew up in a strong Midwest and moral family who taught me right from wrong and to stand up for my rights and the rights of others. In these tough economic times, you need an advocate on your side. Why do I practice law? Often, people are facing seemingly insurmountable opposition with little or no ability to overcome great odds. It is my position that we should all be fighting for those who find themselves alone, afraid, and at times unpopular. I subscribe to the notion that a society should be judged by how it treats its most vulnerable members. I represent, and I fight for, those people. “There is light at the end of that tunnel, don’t stop.”

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