St. Louis Bankruptcy Lawyer Tip: Insider Repayment Issues

Sometimes people who are struggling financially repay a family member

, a friend, or a business associate they owe money to, which may create a problem if the client files bankruptcy for a while after that repayment.

The Bankruptcy Code was created by the United States Congress with an intent to stop or discourage people who file bankruptcy from repaying individuals they have a close relationship with such as a relative, friend, or business associate at the expense of other creditors who deserve to be paid.

If such insider repayment is made within one year prior to the filing of the bankruptcy, then the bankruptcy trustee has the legal authority and actually a duty to the creditors to recover from the friend, relative, or business associate who has received the debt repayment within the twelve months before the filing of the clients bankruptcy.

In a Chapter 13 bankruptcy case, the client must either repay over the life of the Chapter 13 Plan to unsecured creditors the amount equal to what was repaid to the family member, friend or business associate or subject the relative, friend or business associate to being forced to pay to the Trustee the sum paid by the client within the 1 year prior to case filing.

In a Chapter 7 bankruptcy case, the friend, family member or business associate repaid by the client within the 1 year before filing, may need to immediately turn over to the Chapter 7 Trustee the amount of money paid by the client within the year prior to bankruptcy filing or subject the insider creditor to being sued by The Trustee to recover those funds.

Lets say a client who wants to file bankruptcy repays a friend, relative, or business partner $10,000.00 owed to that person on May 1, 2012, the client would then have to wait until May 1, 2013 to file a Chapter 7 bankruptcy in which the insider creditor would not have to turn over the $10,000 for distribution to creditors.

If you are struggling financially, before you repay a friend, relative or business associate back money you owe them, then you may want to consider filing for bankruptcy relief and schedule a consultation with a bankruptcy attorney.

by: Frank Ledbetter

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