Borrowing money through a loan or credit card purchase means making a promise to keep up with payments and repay the money you’ve borrowed. If your circumstances change and you realize you can’t make good on this promise, it’s wise to look into filing bankruptcy.
It is common to make some payments before filing, to at least show you’re making an effort. In reality, doing so can cause problems for your bankruptcy case. The court could see these payments as “avoidable preferences” since you decide which creditor receives money. Part of the court trustee’s job is to ensure that creditors are paid equally as your case is settled. If you’ve chosen to make payments to only certain creditors, the court will need to collect these payments to equally distribute the funds to all of your creditors.
Making payments just prior to filing bankruptcy is not Bankruptcy Fraud, but will trigger the court trustee to take a closer look at your case and the specifics of these payments. Payments to a friend or family member who loaned you money will not cause problems, as long as the payments were less than $600. Making payments for more than $600 within the last year, the trustee requires your friend or family member to return the money. When giving monetary gifts to friends or family members, these limits do not apply, as long as the gift is not tied to a debt.
If you have made a payment of over $600 to one of your regular creditors within 90 days of filing bankruptcy, the court trustee will attempt to collect the money. Due to this low dollar amount and the volume of cases, creditors usually won’t make the effort unless the amount that you paid was significantly more than $600.
If you did make payments without knowing this information, do not to worry. The court trustee will not attempt to collect additional funds from you. Also, this may not even apply to your situation, such as if you were not insolvent when you made the payments. If you had more assets than debts at that time, we’ll work together to demonstrate this to the court.
Another option is to wait until the 90-day window has passed before filing. If you can’t wait to file bankruptcy and you owe money to friends or family members, they may be willing to wait a while for their payments.
Your Best Option
Most of us never imagine that we’ll need to file bankruptcy, but life can throw some unexpected curve balls. Continually falling behind on bills indicates that bankruptcy may be your best option. Creditors understand that a percentage of borrowers will not be able to pay their debts. Don’t let worry or guilt keep you from the benefits that you need.