Debtors frequently want to friends, family or employers back monies that they have borrowed. This is called preferential treatment.
That means that you owed other creditors money, but preferred to pay your friend or relative. This includes not only family but also other creditors (paying off a credit card so they can keep it after the bankruptcy). If you made these preferential payments within 90 to 365 days prior to filing the bankruptcy, the Court can force the parties who received the money to give it to the Bankruptcy Trustee. The 90 day period is for “outsiders” – those that have no reason to want to help the Debtor. If the person/entity receiving the funds is an “insider”, then the period extends to one full year.
“Insider” is defined in 11 U.S.C. 101 and includes family members, partners, and corporations in which the debtor is a decision maker.
It is not wrong for the debtor to make payments to one creditor and not another so long as they are certain types of debts. If the Trustee elects to go after the monies or transfers made to that creditor, then it is the creditor who will lose, not the debtor. This is an issue that needs to thoroughly discussed with your attorney, BEFORE making the payment or the transfer.
There is nothing to prohibit you from voluntarily paying anyone you wish after your bankruptcy is completed.
The same problem arises if the Debtor sold or transfers any assets prior to filing for bankruptcy. The look-back period is 90 day for outsides and two years for insiders. Again, do not make any transfers or give any any assists without first obtaining the advice of an experienced bankruptcy lawyer.
