Can I Pay My Family Members Money I Owe Them Before Filing for Bankruptcy?

Paying money to a friend or family member shortly before filing for bankruptcy could be considered a “preferential transfer” that unfairly favors one creditor over others. If you make a payment (or transfer assets) of over $600 to a friend or family member within a year before filing bankruptcy, it is considered a preferential transfer. A total payment of over $600 to any creditor within the 90 days before filing bankruptcy is also considered a preferential transfer.

If your bankruptcy trustee discovers that you have made a preferential transfer, they may be able to “claw back” the payment and distribute those assets among all your creditors.  After your bankruptcy has been finished, you are free to voluntarily pay back anyone, even family members, but you are not required to do so.