Borrowing from friends and family is a viable option if you are experiencing financial difficulties and are unable to pay your expenses. There may be better options than borrowing money, even if someone is willing to help you. Before borrowing money from a friend or family member to avoid bankruptcy, consider the following factors.
Borrowing may exacerbate your misery.
It is only a good idea to incur debt if you have a plan in place to repay it. For example, if you need $1,000 to make a late mortgage payment this month and know you’ll be getting a raise next month, borrowing $1,000 now makes sense. If you are unsure when you will start receiving more money, you should avoid taking on additional obligations that will add to your responsibilities and increase your financial burden.
Borrowing may jeopardize the financial security of others.
Another reason to be cautious about borrowing from friends and family is that you want them to avoid ending up in debt as a result of your assistance.
Bankruptcy can assist you in getting out of debt for good.
If you have yet to make a clear plan for getting out of debt, filing for bankruptcy may be a better option than continuing to struggle with monthly costs that far exceed your income. However, you should consider how declaring bankruptcy will affect any debts you owe to friends and family.
You won’t be able to repay friends and family before declaring bankruptcy.
If you declare bankruptcy, your ability to repay your friends and family will be severely limited. You cannot make payments or transfers to friends or relatives within one year of filing. If you pay, the bankruptcy court may consider it a “preferential transfer.” They may even demand that the funds be returned to be distributed to other creditors during your bankruptcy. Making advantageous transfers could also be considered bankruptcy fraud.
Loans from friends and family are dischargeable in Chapter 7 and Chapter 13.
If you file for Chapter 13 bankruptcy, any recorded loans you received from friends and family may be included in your Chapter 13 bankruptcy repayment plan, allowing them to recover at least a portion of the money they lent you. If you file for Chapter 7, all of your unsecured debts, including personal loans, will be discharged, and your friends and family will receive nothing. A discharge erases your legal responsibility to pay back the loan, but you can voluntarily make payments after your bankruptcy case is concluded.
Do you need assistance?
If you need assistance arranging for personal bankruptcy, please contact Winterbotham Parham Teeple, a PC immediately at 800.400.9000.