Tuesday, September 27, 2016
Can I Pay Off A Loan Before I File Bankruptcy?
Some people like to keep all of their debts current right up until the day they file bankruptcy, while others are not able to continue to make all of their payments. There is even some thought that if you pay off a loan before you file your case, you will be in better shape once your bankruptcy is prepared. Perhaps it is an effort to keep in good standing with a certain lender, or the idea of falling behind that makes people want to pay as much debt as they can before the file bankruptcy. But doing so could have adverse consequences, so it is best to speak with an experienced bankruptcy attorney before you make any decisions about your debt.
One of the provisions of the bankruptcy code prohibits giving preferential treatment to one creditor over the others. This includes paying off a creditor within a certain time frame before filing your case, while not doing the same for the rest of your lenders. If the bankruptcy trustee assigned to your case thinks you have made a payment like this, he or she can attempt to “undo” the payment by claiming it is what is referred to as a preference. Here is how it works:
• Payments to one creditor and not the others, or not in the ordinary course of payment, within 90 days before you file your case are considered preference payments.
• The trustee can seek to have the payment returned, and will then disburse the money evenly to all creditors.
• If the creditor in question is a family member, the time period is longer than 90 days and this could leave a well-meaning mom or dad left without being repaid for a loan made to you.
To make a claim for repayment of a sum of money the trustee considers a preferential payment, the first step is for the trustee to send the creditor in question a demand for return of the funds. As the debtor, your involvement will be virtually non-existent, so there is really no benefit to trying to pay off certain creditors before you file your case. This is true even if you think doing so will put you in a better position to borrow from this lender in the future. The truth is that any loans you need down the road will be evaluated by looking at your income and debts, and credit history. Paying off a lender before a bankruptcy case will have little impact on the decision to grant credit at a later date. If you have questions about how to handle your debt load while you are gathering the information and documents needed to file a bankruptcy case, call our office for answers.
For more information about bankruptcy, call us today or reach us online at www.law-ri.com. We offer appointments at multiple locations for your convenience and can schedule a time to visit with you today.