Does a loan become a pay-on-demand asset in a bankruptcy?

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Does a loan become a pay-on-demand asset in a bankruptcy?

My wife borrowed $10k from a friend a few years ago at zero interest and an agreement to pay when we can with an agreement to be paid within 20-25 years. It was done on a handshake but this person is willing to write that this is true. The friend has since filed bankruptcy and claimed the loan as an asset. The trustee (attorney) has filed suit for us to pay in full. He said that once an agreement falls through to bankruptcy the note becomes payable on demand and original terms are no longer valid. I am trying to find out if this is correct as it will dictate how we proceed.

Asked on July 20, 2011 Michigan

Answers:

MD, Member, California Bar / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

Well here is the issue. Anything like a loan for over $500.00 or something that cannot be completed in one year should be in writing pursuant to the statute of frauds. Unfortunately, while this may be a great defense for you, the only way out of this defense for this trustee and bankruptcy claimant is if your wife has begun to pay on the loan and there is written proof that those payments are loan payments (like your wife listing it on the memo portion of the check). If there is no payment, then performance did not occur and now you have to see if this woman missed the statute of limitations by making a verbal loan not payable within one or two years. Now, usually loans are only payable on demand when defaulted by the borrower. Ask the trustee to provide information to you on his or legal theory and see what occurs.


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