Important information to consider before letting a friend or family member give you a loan
If you are struggling with your finances to the point where you simply can’t pay your bills, borrowing from friends and family may seem like an appealing option. However, even if someone is eager to help you, borrowing money may not be the right decision. Before you decide to take a loan from a friend or family member in order to avoid bankruptcy, be sure you’ve considered the following important points.
Borrowing May Just Prolong Your Agony
It is never a good idea to take out debt unless you have a plan for repaying it. For example, if you need $1,000 to make your overdue mortgage payment this month and you know for certain you are getting a raise next month, it makes sense to borrow that $1,000 now. If you have no idea when you are going to start having more cash coming in, you probably should not be taking on new debts that will only add to your burdens and actually make bankruptcy more likely down the line.
Borrowing Could Put Others’ Finances in Jeopardy
Another reason you need to think carefully about borrowing from friends and family members is that you do not want them to end up in a precarious financial situation of their own because they’ve helped you.
Bankruptcy Can Provide Lasting Debt Relief
If you have no clear plan for getting yourself out of debt, filing for bankruptcy may be a better solution than continuing to struggle on with monthly expenses that vastly exceed your income. However, you need to be aware of how filing for bankruptcy will affect any debts you may already owe to friends and family members.
You Can’t Repay Friends and Family Immediately Before a Bankruptcy
If you do decide to file for bankruptcy, this will limit your ability to repay your friends and family. You cannot make any payments or transfers to friends or family within 1 year of filing. If you do make a payment, it could be viewed as a “preferential transfer” by the bankruptcy court. They may actually order the recipient to give back the money so that it can be disbursed to other creditors during your bankruptcy proceeding. You could also be accused of bankruptcy fraud for making preferential transfers.
Loans From Friends and Family May Be Included in Chapter 13 But Not Chapter 7
If you file for Chapter 13 bankruptcy, any documented loans you have received from friends and family could potentially be included in your Chapter 13 bankruptcy repayment plan, enabling them to recover at least a portion of the money they loaned you. However, if you file for Chapter 7, all your unsecured debts including personal loans will be discharged and your friends and family will get nothing.
If you need advice about planning for personal bankruptcy or want help preparing your paperwork, please contact California Bankruptcy Relief at 888-748-0025 now.