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One of the goals of bankruptcy is to make sure that all of the creditors are treated equally. To achieve this goal, some debtors may be required to hand over some payments that were made to them if they are considered to be preferential. This might affect you and your relationship with your creditors if you file for bankruptcy. 

Preferential Payments

An example of a preferential payment is if you already have a relationship with a creditor, such as a family member. A family member might casually loan you money and you might be concerned about paying them back to avoid causing damage to your relationship.

Any payment that you make within 90 days of filing for bankruptcy could become a part of your estate and the creditor may need to repay. However, for payments that were made within a year of filing for bankruptcy, a creditor who is considered an "insider" may be forced to return the money. Each creditor would then be equally entitled to your estate.

Insider Status

Whether or not a party is considered an "insider" can be complicated and is often decided by the courts. You will need to speak to a bankruptcy attorney to receive advice on whether you will be able to make a payment to a particular individual. Usually, family members and your spouse might fall under the category of an insider. However, the courts may rule that a partner may not be considered one. 

When the courts try to determine whether other parties are considered to have an insider status, they will see if you have intermingled your finances and whether you cohabitate. For example, sharing a bank account may make it impossible for you to pay off the debt owed to the other party without the courts attempting to recover that payment. 

After Bankruptcy

You may decide to not make payments to creditors after bankruptcy because the creditors are not able to force you to pay and you will not improve your credit score by paying them. You might also hamper your ability to recover financially. However, you are still allowed to repay the creditors if you choose so.

Yet, it's important to know that with personal debts, you may want to repay the loan so you do not hurt your friend or family member. However, because of the rules regarding the filing of bankruptcy, you may want to avoid making payments until your debts have been discharged. For more information about bankruptcy law, contact a bankruptcy attorney.