Clients about to file bankruptcy understandably are interested in retaining a credit card or excluding certain debts from the bankruptcy. Usually this stems from a sense of responsibility to the creditor, or the desire to have available credit after filing. While these are admirable reasons, generally speaking all debt needs to be included in the bankruptcy.
At its core, the bankruptcy code is written in a way that all creditors are treated equally in a bankruptcy. In many instances, Chapter 13 bankruptcy clients will be paying back some percentage of unsecured debt and each creditor takes a pro rata share. In a Chapter 7 case, where you may not be paying any creditors, it is still vital that all creditors receive the notice of your filing that they are entitled to receive.
Debt To A Family Member
Often a bankruptcy client will have a loan from a family member. The bankruptcy filing will need to include that debt. Usually, a quick conversation with clients about this puts them at ease. While the bankruptcy filing eliminates the legal obligation to repay that debt, the client can choose to pay back the family member after the case is closed or a dismissal is reached. A phone call from the client to the family member is almost always well received. The family member gets written notice of the bankruptcy and nothing else happens.
When Can I Pay Back Friends And Family?
It’s important that you treat all creditors equally as you approach filing for bankruptcy. The trustee will typically ask you if you have made any payments to creditors, including friends and family, in the past year. If you paid one creditor and not another, the trustee may have an obligation to try to recover that payment so that all creditors can take a pro rata share. Again, payments to friends and family need to wait until after the case is closed.
Your Concerns Are Admirable And Legitimate
You’re asking all the right questions. You are trying to meet your obligations. Call me today to discuss a strategy for re-establishing your financial footing, while maintaining healthy relationships with friends and family at the same time. You can reach me directly at 704.749.7747.