Yes, you can. Let’s take a look at why the court wants to know about this information and what may happen if you paid someone you know back in the 12 months before filing your case.
Why does the court ask this question?
The reason the forms are asking for this information is to make sure that all creditors are treated fairly. It’s not uncommon for folks already struggling with debt to borrow money from family members or friends. It’s also not uncommon or unusual that folks 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.
But, even though it makes sense from a human perspective, when you look at it from the perspective of the bankruptcy court, it’s not fair that mom got paid back in full even though other creditors were not.
Remember, the Bankruptcy Code is very black and white and it’s primary goal is to give the filer a fresh start while treating the creditors as fairly as possible. That’s why the forms ask you to list payments you made to creditors in the 3 months before filing and payments 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 paid back someone you know in the 12 months before filing bankruptcy, the bankruptcy trustee can essentially request a refund, so the money can be distributed evenly among your unsecured creditors. Often times the trustee will give the filer the opportunity to come up with the money for the refund before contacting the person you paid directly, but they don’t have to do that.
While this is not uncommon in Chapter 7 cases, whether your trustee will be interested in recovering the funds you paid will depend, in large part, on how much the payment was. They’re not able to go after payments of less than $600. But, that $600 is spread out over the full 12 months, so make sure to calculate the full amount you paid the person in the 12 months.
Will this affect my ability to get my bankruptcy discharge?
You can still file a Chapter 7 bankruptcy if you paid someone you know back in the last 12 months. Assuming you properly list this information in your bankruptcy forms, the absolute worst that can happen is the trustee demanding a refund from the person you paid.