Anyone contemplating a bankruptcy filing should avoid repaying debts to family and friends prior to filing their bankruptcy petition. Failure to do so can lead to disaster.


As a general rule, anything repaid to a relative or friend within a year period prior to filing a bankruptcy case can be recovered by the Bankruptcy Trustee.    That means that the Trustee has the power and right to demand and, if need be, sue that relative to recover the money or property repaid to them during that period.   

This same rule applies to any non-relative or non-friend creditor except that for them “the look back period” is only 90 days prior to filing the bankruptcy case, so it’s usually easy to wait the 90 days before filing.  But obviously much harder if a relative has been recently repaid.


This is not to say that you cannot repay your friends and family members if you choose to do so. There is nothing that prevents the repayment of any debt after the bankruptcy case is completed, so if you want to repay anyone, just do it after the bankruptcy case is completed.


Another related issue, which will not be covered here, is simply transferring assets or money to someone prior to filing a bankruptcy case is considered a “fraudulent transfer and can be recovered by the trustee.

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