Hi. This is Jonathan Ginsberg, and I’d like
to talk to you today about debts owed to relatives when you file bankruptcy,
and let’s just use Chapter Seven. I think it’s easier example
and that the same principles apply in Chapter 13. If you file bankruptcy, Chapter Seven, Chapter
13, you got to list all your creditors, and that includes relatives. So
you can’t selectively leave out your cousin, your brother, your sister, your
mom, your dad, whatever might be. You got to include the debts to that relative
in your bankruptcy filing. That’s what the law says. Now there are some circumstances where a relative
will kind of loan you money on handshake and it’s not really formalized.
But if that is a debt, there is an expectation that you got to pay
it back, you need to really list it. Now there are some circumstances
where a relative will loan you money, let’s say to buy a house, or buy a
car and as far as the relative is concerned, the car is kind of collateral for
the loan, the house or whatever the property might be is collateral
for the loan. However, if you don’t go through the formalities and have
a financing statement and a written agreement, then the bankruptcy court’s
going to consider that an unsecured loan. And that can be an issue if
you’re trying to schedule a Chapter 13 plan. For example, you’re trying
to set out payments in your [means test], if it’s not a true secured loan,
it can create some issues for you. I would also tell you do not try to create
a secure loan out of an unsecured one. So in other words, don’t put
together and back it with a bunch of paperwork. That’s going to backfire.
That is not a good thing because, again, especially in Georgia. If
it’s not recorded, there’s going to be some real question about whether it’s
recorded at the Superior Court where everybody lives, where the loan is taken
out, where the debtor lives. It’s really going to be questioned. So I would
not back the paperwork. I would talk to an attorney about that. So those are some of the issues that you kind
of run into. Again, a lot of times loans between family members are informal,
sometimes they are a gift, are they a loan. You really got to decide.
And those are some sort of the things you want to talk to your attorney about. And I think another thing you want to really
keep in mind is don’t prepay loans to your relatives before filing. That
is a real big problem because if you pay back a debt to somebody, especially
a relative that could be consider an insider, that could be something
considered preferential payment. Could be a fraudulent transfer. All
kind of problems exist and the one thing about bankruptcy which is kind of
interesting is you can’t undo it, you can’t say well, I made this mistake,
I paid this person back, I made this payment. I want to now undo it,
pretend it didn’t happen. You can’t do that. Once you made the payment,
paid that person back, you have a real problem. You won’t be able to file at
all. So I think the point I’m making here is that loans from relatives,
payments to relatives, that can be a real minefield. The best thing you can do is talk to your
lawyer before making any decisions about making payments to anybody,
putting things in writing, changing anything that’s already existed.
Talk to your lawyer while it’s still as it was and your lawyer can advice
you whether or not there’s formalities that can apply, there’s things
you can do. Sometimes there are things you can do depending on the timeframe.
But don’t do stuff, make payments, put stuff in writing, change things
around, then talk to your lawyer and say Help me make this come true.
It doesn’t work that way. So I hope this is helpful and I hope you realize
that loans to relatives are going to be scrutinized. Loans from relatives
rather are going to be scrutinized, payments back to relatives or
friends are going to be scrutinized so be very, very careful and seek
legal advice before taking any action, not afterwards. This is not one
of those cases where it’s better to ask for forgiveness than permission.
It’s better to find out before hand what your rights, obligations
are so that you know what you can and cannot do. Again, I’m Jonathan Ginsberg. I hope this
has been helpful. Any questions about personal bankruptcy, please call me. Thanks a lot.