Can I sell my car to pay my brother back for a loan that he made to me and then file bankruptcy after?

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Can I sell my car to pay my brother back for a loan that he made to me and then file bankruptcy after?

Asked on August 21, 2013 under Bankruptcy Law, Ohio

Answers:

M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

You shouldn’t try to repay “insiders” (i.e relatives or close friends) before you file because the bankruptcy court has the power to “avoid” (i.e. reverse) these payments. This means that if you repay your friends or relatives, they may have to give back the money (where it will be split up among all the creditors owed). In bankruptcy this is known as a “preference” because the payments were made to creditors that you may have preferred over others. While not in and of itself fraudulent (since it is a payment made to someone for a valid debt), it favors the creditors who were paid. Specifically, payments made to “insiders” within 1 year prior to filing are at risk (while there is a 90 day look-back for payments made to non-insiders).

That having been said, if you want to wait until your bankruptcy case has been discharged you can pay back any creditors that you want, including your friends or family, without worrying that the court will ask for it back.  

Bottom line, before taking any action of this sort, you need to discuss it with your attorney.  

Note: Not all pre-petition payments are preferences.  For example, mortgage and car payments, ongoing rent or utility payments, and regular payments on some types of loans incurred in the ordinary course of business.


IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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