How Do I Handle Debt I Owe Friends Or Family Members If I File For Bankruptcy?

If you are considering personal bankruptcy, you might be feeling especially anxious about debts you owe to friends or family members, or loans or lines of credit that friends or family members have co-signed for you. Indeed, you may be wondering if you have some kind of option to repay these friends or family members before you file for Chapter 7 bankruptcy to ensure that they get repaid what you owe, or if you can take any steps to prevent your friends or family members from getting stuck with debt on a co-signed loan or line of credit. First, it is essential to know that repaying personal debts before a bankruptcy filing is a topic that is distinct from handling co-signed loans or lines of credit prior to or during a bankruptcy filing. Our West Palm Beach bankruptcy lawyers can provide you with additional information you need to know.

Be Careful About Repaying Friends and Family Members to Whom You Owe Personal Debts 

When you are planning to file for bankruptcy, and for Chapter 7 bankruptcy in particular, you need to be careful about repaying any personal debts you owe to friends or family members prior to your bankruptcy filing. If there is documentation of these debts, they are legitimate debts that can be handled in your bankruptcy case (such as bank statements that show a transfer, or a bill paid by a family member). However, if you pay these debts out of your own bank account or by selling property prior to filing for bankruptcy, you could face consequences.

Even when there is clear documentation of the personal debt, the bankruptcy trustee could “claw back” any payment you made in the 90 days prior to your bankruptcy filing because other creditors have preference or priority. If there is no documentation of the personal debt, a transfer of funds could look like an attempt to conceal assets and could, in some cases, result in questions of bankruptcy fraud. Before you make a payment to a friend or family member for a debt you owe, you should speak with a bankruptcy lawyer if you are planning to file.

You Can Reaffirm Co-Signed Debt 

If you file for Chapter 7 bankruptcy and have a co-signed loan or line of credit, even if that debt is discharged for you, the co-signer will still owe it. To avoid this issue, you can “reaffirm” the debt, which means this debt will not be discharged in your bankruptcy, and you can continue to pay it off after you receive a discharge.

Contact Our Bankruptcy Attorneys in West Palm Beach 

Do you owe money to friends or family members, or do you have a co-signed loan or line of credit with a friend or family member? If you are in a situation like this and are planning to file for bankruptcy, it is essential to get in touch with an experienced lawyer who can help you to understand your options. We know how important it is to preserve your relationship with friends and family members who have provided you with financial assistance in the past while still being able to get a fresh start financially or reorganize debt through a bankruptcy filing. One of our West Palm Beach bankruptcy attorneys at Kelley Kaplan & Eller can speak with you today about your situation.

Sources:

law.cornell.edu/uscode/text/11

floridabar.org/the-florida-bar-journal/eleventh-circuits-ruling-strengthens-creditors-new-value-defense-to-preference/

uscourts.gov/sites/default/files/b_240a_0410.pdf#:~:text=A%20reaffirmed%20debt%20remains%20your,your%20property%20or%20your%20wages