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Bankruptcy can be a big disruption to your life. One of the hardest things to encounter is the restrictions that you might face when you are in the process of repayment or debt settlement. It can be hard to know if you’re allowed to accept a financial gift from a friend, or if it’s okay for a family member to purchase a plane ticket for you to travel.

Before you do anything like accept a financial gift or loan, make sure you speak with your bankruptcy attorney. They will be able to advise you on what will or won’t affect your bankruptcy.

Borrowing Money from Friends and Family

When seeking financial aid, it’s natural for people to turn to friends and family before they turn to a bank. But if financial difficulties lead to filing for bankruptcy protection, you’ll want to make sure that the friends and family you borrowed from are going to be protected.

Here are some important things to consider:

  • The first question you’ll get is if you signed a promissory note. This is a written and signed promise to pay a stated sum to a specific person at either a specified date or on demand. The note must include information that identifies the borrower and the lender, and should also specify the amount that was borrowed, the terms of repayment, and the consequences for not paying the loan.
  • If you signed a promissory note, the money you received from your friend or family member will be formally treated as a loan. 
  • If there is no note, then the money can be treated as a gift. It’s important to remember that gifts are assets.

For example, if your rich aunt gives you $1 million house and puts the title in your name, it is an asset, and therefore will be considered when you file for bankruptcy as such.

Personal Loans

If the money you received from your friend or family member has a promissory note, and is thus considered a loan, you will need to list this lender as a creditor in your bankruptcy. They will be entitled to repayment in the exact way that any other creditor is.

How Gifts Affect Bankruptcy 

While the money you have been loaned from friends and family can be considered a gift, you will still need to disclose the amount on your bankruptcy schedules.

Here is how gifts can affect your bankruptcy:

Gifts You Gave: Depending on the state you file in, you might be required to disclose the amount you gave on your bankruptcy schedules if it’s over a certain dollar amount.

When Was the Gift Made? The timing of your bankruptcy filing determines what happens to the gift. If the gift was received prior to filing, a court will take it into account when determining the amount you need to pay creditors. But if the gift was received after filing for Chapter 7, it will not be included in the bankruptcy proceeding.

For Chapter 13, it will depend on your specifics. If the gift was received before filing, you might be expected to pay more money to your creditors. If you receive the gift between the date of filing and the date the repayment plan is confirmed, your trustee might view that gift as disposable income, which means you will be able to pay more to your creditors. If the gift is received after the repayment plan has been confirmed, you’ll probably be able to keep the gift without having to increase the payments to creditors.

How Much Was the Gift? If the gifts are significant amounts, a trustee might be able to claim that money and make you repay your creditors with it. This is why it’s important to be smart about gifts you receive during bankruptcy. A bankruptcy court’s main objective is to keep creditors at bay. A bankruptcy trustee has the right to take back property or money that the debtor improperly gave away before filing in what is termed as a “clawback.”


A clawback is when a trustee voids a transaction you made and uses that money to repay a creditor.

Clawbacks can be triggered for a number of reasons, including:

  • Something as small as giving cash to a relative for their birthday. These can also be deemed “fraudulent transfers.”
  • If you repay a loan from a friend or family (either with or without a promissory note) before filing for bankruptcy. This is called a “preferential payment.”

What this means is that you chose to repay a creditor over another creditor (remember, they are all viewed as “creditors,” regardless of their relationship to you).  A bankruptcy court’s job is to ensure all creditors are treated equally during the bankruptcy process.

Fraudulent Transfers

When a court deems a transfer of money a “fraudulent transfer,”they will need to recover the money as an asset that can be used for bankruptcy purposes. This can be a very costly mistake, and if a court finds the fraudulent transfer was done to intentionally shield the asset from bankruptcy, a court can stop the bankruptcy so that a debtor is not able to disclose their debts.

Because of the laws regarding gifts and loans, it’s important that you consult a bankruptcy attorney before you give any money to anyone during a bankruptcy. If you have not yet filed for bankruptcy, but are considering it, you should speak with an attorney before accepting any loans or gifts from family members.

When Is Someone Restricted from Filing for Bankruptcy?

Although bankruptcy is an option available to everyone, not everyone will qualify to file for certain types of bankruptcy

You will generally not qualify for Chapter 7 bankruptcy if:

  • You have previously filed for Chapter 7 within the past 8 years
  • You do not pass the Means Test (meaning your income is too high)

You do not qualify for Chapter 13 if:

  • You do not have a steady income to repay your debts through a payment plan 
  • You have debts that exceed the limit
  • You have previously filed for Chapter 13 within the last 2 years 

If you have questions about your eligibility, discuss your situation with an attorney to explore your options. 

Working with a Bankruptcy Attorney

Bankruptcy law can be hard to understand. As you can see, there are a number of restrictions when it comes to filing bankruptcies. Because of this, it’s highly advised that you work with a bankruptcy attorney that can walk you through the process and clarify any questions or concerns you might have.

A bankruptcy attorney might also be able to prescribe options that keep you out of having to declare bankruptcy in the first place. There can be a lot of questions during this extremely stressful time. Let the lawyers at RHM LAW LLP walk you through the process so you can achieve the best outcome possible. 

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