If you are having financial difficulties and are unable to pay your expenses, borrowing from friends and family may appear to be a viable alternative. Even if someone is willing to assist you, borrowing money might not be the best option. Before you decide to borrow money from a friend or family member to prevent bankruptcy, be sure you’ve thought about the following factors.
Borrowing could just make your misery worse
It’s never a smart idea to take on debt unless you have a strategy in place to pay it back. For example, if you need $1,000 to make a past-due mortgage payment this month and you know you’ll get a raise next month, borrowing $1,000 now makes reasonable sense. If you have no idea when you will start receiving more money, you should generally avoid taking on additional obligations that will simply add to your responsibilities and make bankruptcy more likely down the road.
Borrowing might jeopardize the finances of others
Another reason you should be cautious about borrowing from friends and relatives is that you don’t want them to find themselves in a financial bind as a result of your assistance.
Bankruptcy can help you get out of debt forever
Filing for bankruptcy may be a better option than continuing to struggle with monthly costs that much surpass your income if you have no clear plan for getting out of debt. However, you should consider how filing for bankruptcy would effect any debts you owe to friends and family members.
Before filing for bankruptcy, you won’t be able to repay friends and family
If you decide to file for bankruptcy, your capacity to repay your friends and family will be limited. Within one year of filing, you are unable to make any payments or transfers to friends or relatives. If you do make a payment, the bankruptcy court may consider it a “preferential transfer.” They may even require the recipient to return the funds so that it may be distributed to other creditors during your bankruptcy. Making favorable transfers might also be considered bankruptcy fraud.
Chapter 13 may include loans from friends and family, but not Chapter 7
Any recorded loans you have received from friends and family might possibly 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 13 bankruptcy. If you file for Chapter 7, however, all of your unsecured obligations will be dismissed, including personal loans, and your friends and family will get nothing.
Do you require assistance?
Please call The Law Offices of Paul Y. Lee at 888-748-0025 right away if you need help arranging for personal bankruptcy or drafting your papers.