What do about a personal loan and bankruptcy?

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What do about a personal loan and bankruptcy?

I wrote a letter to a friend who filed bankruptcy saying that I loaned him $5,000 and that he repaid the loan. I then got a letter from his lawyer telling me that I have to appear in court and repay my friend his money. What should I do?

Asked on January 5, 2012 under Bankruptcy Law, Maryland

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 9 years ago | Contributor

When someone files bankruptcy, certain transactions that they engaged in may be "set aside" if it appears that they were preferential--treated one creditor better than others--or were fraudulent--that is, they were not bona fide transactions, but instead were specifically for the purpose of trying to hide assets. For example, paying money to a friend, business partner or spouse shortly before a bankruptcy is often a way to try to hide money from legitimate creditors; the friend, partner, or spouse either is not really paid the money, or will return it later, or there was no actual legitimate debt for the money in the first  place, etc.

From what you write, it appears that you are in a situation where either they expect you to return the $5,000 on the grounds it was a preferential or fraudulent transaction; or you will have to admit you lied about the loan and receiving it (if you did lie; it is difficult to understand exactly what occured from what you wrote), in which case you could face other liability, including potentially criminal liability. This would appear to be a case where, faced with significant possible liability, you should retain an attorney to advise and represent you, and you should not say anything to anyone until you speak with your laywer.


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