Yes, you can. Let’s take a look at why the court wants to know about this and what may happen if you paid someone you know back in the 12 months before filing your bankruptcy case.
Why Does the Court Ask This Question?
When you file bankruptcy paperwork, you’ll be asked if you’ve made any debt payments to people you know (also called “insiders”) in the year before filing. This may seem like a strange question, but the forms ask it to make sure that all your creditors are treated fairly.
It’s not uncommon for people who are struggling with debt to borrow money from family members or friends. It’s also not uncommon or unusual that many people want to pay this debt back first. It makes perfect sense that you’d want to use your tax refund to pay back the $1,000 your mom loaned you last year, rather than sending that money to a debt collector.
Though this instinct is understandable, when you look at it from the perspective of the bankruptcy court, it’s not fair that someone’s mom gets paid back in full while their other creditors get nothing.
Remember, the Bankruptcy Code is very black and white. Its primary goal is to give the filer a fresh start while treating all their creditors as fairly as possible. That’s why the forms ask you to list payments you’ve made to creditors in the three months before filing and payments you’ve made to family members or friends in the 12 months before filing.
What Can Happen if I Paid Someone I Know Back in the Last Year?
If you repaid a debt of more than $600 in the 12 months before filing your bankruptcy, the bankruptcy trustee can ask for the money back. Then the trustee will split that money evenly among your unsecured creditors. Often, the trustee will give the filer the opportunity to come up with the money before contacting the person you paid directly, but they don’t have to.
While this is common in Chapter 7 cases, not every trustee will be interested in recovering the funds you paid. It usually depends on how much money you paid. If you paid a total of $600 or less to any given person in that 12-month period, the trustee can’t go after the money.
Will This Affect My Ability To Get My Bankruptcy Discharge?
No. As long as you meet all of the other Chapter 7 requirements, your discharge order will automatically be entered when the time comes.
The bottom line is that you can still file a Chapter 7 bankruptcy if you paid someone you know back in the last 12 months. As long as you list this information in your bankruptcy forms correctly, the worst that can happen is that the trustee demands a refund from the person you paid.