To loan or not to loan

[emiss]

Here's the background: My husband and I filed bankruptcy a few years ago and since then we've been working hard to get back on track, live credit card free and basically take control of our finances. It's not easy, and we're still living paycheck to paycheck, but we're doing our best. Cut to today: My mother-in-law borrowed money from a friend to pay off her car that was about to be repo'ed. Now she's asking my husband and I to loan her the money when we get our tax refund so that she can pay back her friend, with the understanding that she'll pay us back as soon as she can. I really want to help her, but in the same conversation she mentioned that she's planning to file bankruptcy. If so, paying us back would make it a preferential payment. I'm afraid she's going to be very, very upset if we don't loan her the money, because she's done so much to help us in out in the past. I feel like a jerk telling her we can't help her, but we need that money to fix our roof and we've had to wait over a year to take care of it (since we live on cash and not credit now ) So, we can't wait until after she files. I just feel like no matter what, this is going to be a major issue, but I wanted feedback to see if I'm overreacting about the possible ramifications. Someone said that as long as she pays us back in cash it should be fine, but from what I'm seeing here it sounds like that's fraud, and I don't want to do anything dishonest (and I don't think she'd want us to do anything illegal on her behalf). Advice? Thoughts? Any way to keep family harmony here?

[justbroke]

You can loan her the money AND take out a lien on the vehicle. Just have her sign a promissory note, as well as sign an Application for Title with lien along with the vehicles title. Then just follow your State's non-bankruptcy law on titling the vehicle with a lien. Make sure you do it within 20 days of giving her the money and signing the promissory note (or your State's requirement, whichever is shorter).

Yes, it would be a preference if she pays you then files bankruptcy; whether it's cash or not. However, if you loan the money against the title and you put a valid lien on the title to the vehicle, you are covered. None of the payments would be preferential since it would be on a secured debt.

[bcohen]

I wouldn't touch this "deal" with a 10-foot pole connected to another 10-foot pole! Nothing good can ever come of lending money to a family member or friend under any circumstances! If you are willing and able to give money to the friend/family member as a gift, that is one thing, but to lend money--which you cannot afford to lose--will cause nothing but grief for you and the other person!

The smart thing to do is to tell your MIL as sympathetically as possible that you'd love to help, but you simply don't have the money. Be prepared for her pleas or tears or whatever, and just keep repeating the fact that you don't have the money. If she really cares about you, then she'll understand. If not, then you just saved yourself a lot of grief as well as lost money! Seriously, if she can't repay her "friend" then how on Earth is she planning to repay you? With hopes and dreams?

[emiss]

Thank you both for your advice. We told her that we can't loan her the money and my husband tried to explain the realities of BK and that her lawyer will 100% back up what we told her about the fact that she either wouldn't be able to pay us back for a year or she wouldn't be able to file for a year. Right now she doesn't believe us and she just thinks we're being jerks about the whole thing, but I'm hoping that once she meets with a lawyer she'll realize that we really are on her side (and, frankly, the side of family peace since it would have been a major struggle to lose that money that we need). In the meantime, she's just going to have to be angry. Having been through all of this I know all too well how desperate she's feeling and I want to be there for her, but I just can't go down with that ship.

[justbroke]

So, the family dynamics are already in play. Stay strong. I agree with bcohen on the affects of loaning money and how you should not get involved financial with family or friends; been there, done that, and have the t-shirt to prove it.

[bcohen]

Like I said, the issue has nothing to do with her contemplated bankruptcy. Even if your MIL wasn't planning to file for bankruptcy, I still wouldn't lend her the money! The issue is that you desperately need the money to fix up your house--you know, the single largest investment in your life--and cannot afford to lose the money.

If your MIL is angry now, because you won't lend her the money, imagine how angry she would be if you have to repossess and sell her car because you lent her the money, recorded a lien as justbroke suggested, and then she "strings you along" and fails to pay. Believe me, if she can't pay her "friend", she can't pay you, and maybe she should have just let the car be repo'ed since it sounds like she can't afford it.