Money Owed to Family Members

[nohope]

I have borrowed a substantial amount of money from relatives ($20K+) to try to stay afloat. Unfortunately, it looks like I'm sinking. What can I do to ensure that my relatives get paid back before/in addition to my other creditors?

[klandsb]

If I am thinking clearly if u list them on you Chapter 13 they would get the % of payback to unsecured creditors that everyone else gets. Also, if you "admit" to owing them they will be brought into the bankruptcy (not sure if thats what u want or what they want). I owe my ex husband for a car we bought our daughter. I left him off of everything and am paying him what I can when I can without any involvement in the bk...

[olivies]

I have borrowed a substantial amount of money from relatives ($20K+) to try to stay afloat. Unfortunately, it looks like I'm sinking. What can I do to ensure that my relatives get paid back before/in addition to my other creditors?

Well, they would be unsecured. So they will get as much as other unsecured creditors. If you pay them back before filing it shows preference to a creditor. And yes, you have to list them. So basically- you can't make sure they get paid before (unless you finish paying them off and then don't file until more than 90 days later). Now, what you could do is pad your plan like you would for other expenses that normally wouldn't be covered under allowed expenses.

[SMinGA]

Payments to family has a longer 'look back' period than to other unsecured debts. I believe its 2 years - meaning that if you pay family back and then file within 2 years, the trustee can take that money back to spread out evenly to all of your unsecured creditors.

If you file a chapter 13, you should be able to list them as creditors - meaning they will be notified and have to file a claim - but your attorney should be able to explain how you go about doing that. I don't know if you'd need any kind of documentation to show how much borrowed? I am thinking that is possible, as otherwise you could say you owed them a huge amount to try and get them more $$$ from your plan.

[forgotten]

Whatever you do, don't try and pay them off before you file. That is just going to create a mess.

As was mentioned, they can file a claim as an unsecured creditor. The trustee may file an objection to the claim and require some type of proof. I am not sure what would be considered acceptable.

You are free to pay them back the rest of it after your bankruptcy is over if you wish.

[jange]

I owed 2 relatives $4000 each and our laywer told us to include them in my bankruptcy. They received the notice alongs with the other creditors.
filed ch 13 1/11/10
341 meeting scheduled 3/29/10

[Billssuck]

We owed my brother in law $1,500 and we had to list him as a creditor. He received all the paperwork to file a claim just like the other creditors. What my lawyer told us to do was to wait and pay him back after our ch13 is finished even though we're not legally required to pay him back just like we're not required to pay back the other unsecured accounts. But we will ! He just has to wait the 3+ years which is quite a bummer!

[4gifts4lisa]

What if you signed a secured promissory note to the family member? They would then be above the unsecured creditors, and could be paid off without showing preference. Correct?

[SMinGA]

A promissory note does NOT make it secured. Secured would mean there is collateral for the loan, such as your house or car. If that is the case - and all steps were taken to perfect their security interest in your property - then they can take the property and/or be a priority debt. But expect the trustee to look over the paperwork VERY carefully.

[NoTomatoCan]

SMinGA is right.

This would look incredibly suspicious and would almost certainly cause issues.

The fact that you borrowed money at some time in the past (it would show up in bank records) then, shortly before filing for bankruptcy, the related party attempts to secure the debt.


If it was that easy, everyone filing for bankruptcy would simply "loan out" any funds they have to friendly relatives and then create a bogus secured interest in some property they own. It would create a huge loophole to be able to hide or protect funds. Trustee would see right through this.

[4gifts4lisa]

THANK YOU for the replies! I was/am worried about this. The loan was a promissory note, secured with collateral (my small business inventory, which was roughly the same amount as the loan when the loan was signed), done in October when I was not thinking BK, just home mod. I intended to use my tax refund to pay off the note. The tax refund is now in the bank, but I am terrified of paying the note...it is to my MIL and I do NOT want her to know about the BK. Thus far, I have just said we are trying for a home mod and wanted to be sure the bank knew the tax refund was already "pledged"...basically, that it needed to be repaid and that I didn't want her to be "unsecured".

I am in California, if it makes a difference.

And as you can see, I am a newbie, so you will be plyed with questions from me from here on out...