Be Careful about Borrowing from and Repaying Relatives

Recently a client informed us that she had used her tax refund to pay her property taxes and other necessary expenses. That’s just fine. However, when we looked at her checkbook, it became clear that the client had paid relatives instead. One relative advanced the money to pay the taxes, and the debtor wrote a check repaying the relative. Other relatives were also reimbursed. Instead of waiting to use the tax refund to directly pay expenses, the debtor has created a serious problem.

The debtor has now set up a preference claim in which the trustee can demand reimbursement from the relative. The debtor made a repayment of a loan to “an insider”, and the trustee now has a right to recover this money unless the debtor waits one year to file bankruptcy.

As a Fort Lauderdale bankruptcy attorney in Hollywood, Florida, we will have to properly consult with the client to review the options and strategy she will want to pursue.



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