Borrowing money from friends and relatives may seem like a tempting choice if you are having financial difficulties to the point that you are unable to make your payments. Even if someone may be ready to assist you, taking out a loan might not be the best course of action. Be careful to think about the following crucial factors before deciding to borrow money from a friend or relative in order to prevent bankruptcy.
After reading below, you can contact The Law Offices of Paul Y. Lee at 951-755-1000 to request a free legal consultation with a bankruptcy attorney.
Borrowing may just make your suffering worse
Never take on debt if you don’t have a strategy for paying it back. It makes sense to borrow the $1,000 now, for instance, if you need to make your past-due mortgage payment this month and you are positive that you will receive a raise next month. You generally shouldn’t take on additional obligations if you don’t know when your income will increase because doing so will just increase your financial burdens and increase your likelihood of filing for bankruptcy in the future.
Borrowing might put other people’s finances in danger
You should be careful when borrowing money from friends and relatives since you don’t want them to find themselves in a difficult financial situation as a result of helping you.
Bankruptcy may be a permanent debt relief option
If you don’t have a clear plan for getting out of debt, declaring bankruptcy can be a better option than trying to manage monthly bills that are far greater than your income. However, you should be aware of how declaring bankruptcy would impact any existing debts you might have to friends and relatives.
Before filing for bankruptcy, you cannot immediately repay friends and family
Your ability to pay back your friends and family will be constrained if you decide to file for bankruptcy. Within a year of filing, you are not permitted to make any payments or transfers to friends or family. If you do make a payment, the bankruptcy court can see it as a “preferential transfer.”
They might even compel the recipient to return the funds so that they might be distributed to other creditors in the course of your bankruptcy. You might potentially be charged with bankruptcy fraud if you transfer money in a favorable manner.
Loans from family and friends are permitted under Chapter 13 but not under Chapter 7
Any loans you have received from friends and family that are documented could possibly be included in your Chapter 13 bankruptcy repayment plan if you file for Chapter 13 bankruptcy, allowing them to recoup at least a portion of the money they loaned you. However, if you file for Chapter 7, your friends and relatives won’t receive anything and all of your unsecured debts, including personal loans, would be discharged.
Need guidance?
Call The Law Offices of Paul Y. Lee at 951-755-1000 right now if you need assistance with your papers or guidance on how to plan for personal bankruptcy.
