As an Asheville bankruptcy lawyer, I frequently advise people against filing a bankruptcy case when they have recently paid back a relative or family member. Making gifts or large payments to family members on the eve of bankruptcy can limit your debt relief options. Much better results can be achieved by filing a bankruptcy case first, and then immediately paying back the family member who is owed money after.
I recently spoke with a woman whose marriage had ended badly. She was having a hard time keeping up with her bills in the aftermath, particularly the $30,000 in credit card debt which she ended up keeping in the separation agreement. She received a $5,000 tax refund, and planned to file a Chapter 7 case with some of that money. After catching up on her utility bills, she decided to send the remaining $3,000 to her ailing mother who had lent her the money 6 months earlier (and before the client spent the tax refund money somewhere else first – she was trying to do the right thing!).
Section 547 of the bankruptcy code defines a preferential transfer as one being made to an insider (family member or business partner) within one year of the filing of a bankruptcy petition. A preferential transfer to a non-insider has a look-back period of 90 days, but my clients rarely care whether a trustee goes after Bank of America or Wells Fargo to claw-back money. Family members are different.
The kind woman who paid back her ailing mother decided to wait a year from the date of the transfer so that the trustee would not demand the $3,000 back from her mother. Chapter 13 did not make sense for her. She could have exempted the $3,000 for Mom if we had filed her bankruptcy case before the transfer in Chapter 7. Then she could have sent Mom a check for $3,000 the day after we filed her case without any issue whatsoever.
These facts demonstrate that careful planning can deliver wildly different results in bankruptcy cases. The earlier you get professional financial advice, the quicker your recovery will generally be. For those of you in Western North Carolina, I would be pleased to speak with you during a free, initial bankruptcy consultation.
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