Yes. As we head into the Thanksgiving and Christmas seasons, many people turn their thoughts to friends and family. And if you owe money to those you love, you may begin to think about how you can protect them before you begin to consider contacting a bankruptcy attorney. While this is certainly a noble and understandable thought, it is not in either your best interests or those of your loved one, for the following reasons.
You do need to list all of your debts in your bankruptcy schedules, as required by federal law. This is not as bad as it may seem at first to those of you who are concerned about this however. Just because your friend or family member is listed as a creditor, does not mean that you cannot repay them. Nothing in the law states that you cannot voluntarily repay a debt discharged in a bankruptcy. All you need to do is let the friend or family member know that you were required by the law and your attorney to list their debt, but you will continue to repay it when your case is over. This same advice holds true to a doctor or anyone else close to you with whom you want to maintain a good working relationship.
For those of you who still want to avoid this situation however by just paying your friends/family back before you file bankruptcy, this too is not recommended to do. Any payments to creditors in the year before filing your bankruptcy are scrutinized as a potential “preference.” All this means is that the court and your trustee will be looking for any creditors who received payments which amount to one creditor being “preferred” over your other creditors. If this has happened, your trustee will be able to sue your friend or family member in bankruptcy court to recover the money you paid them back. This would surely be a worse situation than simply explaining to your family that you will repay them the debt after your case is over.
So at the end of the day, not only is it a bad idea to try and repay a friend or family member ahead of your bankruptcy, it can create extra headaches for both you and the person you are trying to protect by repaying them. Always talk to your attorney first before making any large, out of the ordinary repayment of debt to anyone, but especially friends and family. And to all those reading, have a Happy Thanksgiving!