Unfortunately, repayments of loans to family members and close friends are considered preferential payments. This means, that the trustee has the power to avoid that payment. This usually results in the friend or family member being sued by the trustee or the debtor settling with the bankruptcy estate for the amount of the repayment of the loan.
Your bankruptcy attorney will ask you, likely more than once, if you have repaid a friend or family member in the last year prior to filing Chapter 7 or Chapter 13 bankruptcy. You will want to answer this question honestly. Ideally, you want to be honest with all of the questions your attorney asks you, even if you feel that the answer may be detrimental to your best interests. When you are candid and honest with your attorney, you and your attorney can deal with the facts and decide on a good course of action. If your attorney does not have all the information, you will likely be in for some surprises.
If you are not honest, how will anyone know? This is a fair question. Bankruptcy requires a lot of financial disclosure, so evidence of repayments maybe on your bank statements or other financial documents, and you will also be required to testify under oath. And you will be asked about transfers and repayments at your 341 meeting.
Your attorney is there to help you navigate the bankruptcy. But without all the facts your attorney cannot do their job properly. Being forthcoming with information that seems detrimental to your case may seem counterintuitive, but it is far better to give you attorney the information than to allow the trustee to discover the information after filing. Contact the attorneys at LifeBackLaw and see us at www.LifeBackLaw.com. You will be glad you did!