One issue that comes up periodically – especially during the federal tax season – is the payment of money to friends or relatives.  When people are in financial distress they often borrow money from family or friends.  And when they receive a large tax refund they often pay them back.

The problem with this is that a large payment to a friend or relative (referred to as an “insider”) is a preference payment that can be reversed by the Court when you file for bankruptcy.  The is because you ‘preferred’ payment to the insider instead of an equal distribution to all of your creditors.  Such preferential payments made within one year of filing can cause problems.  Best to call an attorney if filing a bankruptcy is a possibility and you owe money to friends or relatives.

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