Can I Pay My Family or Friends Back Before I File Bankruptcy?

Well, you can, but it’s probably not the best idea.  Family members and friends for the fact of the matter are considered “inside” creditors, as labeled in the bankruptcy code 11 U.S.C § 101 (31)(A)(i).   Because this is a loan from your family or friend and was never recorded, they are not looked at the same way as a regular creditor such as a credit card or a mortgage.

You are required to list any payments that you have made that are over $600 in your petition.  But the court is going to look into where your payments went.  Did you pay your mother back $800 and not any other creditors?  If that is the case, the court could look at it as if you were playing “favorites” (meaning, you were choosing to pay her over another creditor) and the Trustee would have the right to go back to your mother and demand that she turn the funds that she took from you and give them to the bankruptcy Trustee for them to distribute to your creditors.  Meaning that you and her both would lose out on the money.

As in any case, each case is different and if this pertains to your situation you will need to discuss it with your bankruptcy attorney, so that he or she may properly advise you.