Someone owes you money. Maybe you performed services for them. Maybe they purchased something from you. Maybe it’s your brother who still hasn’t paid you back that money he borrowed 6 months ago to get him through until his next paycheck. You’ve called, written letters, even threatened a law suit. They keep telling you they just don’t have the money, and you’re thinking that’s probably true and that you may never see the money again. Finally you work something out with them. Maybe you accept a payment plan, maybe you accept a partial payment in full satisfaction just to get something from this deadbeat, or maybe you get lucky and they actually pay you back in full. Great. Now you can go about your business, call it a lesson learned, and never have to worry about it again. Right? Well, maybe.
Under federal bankruptcy law, if a debtor files for bankruptcy, certain payments he made to creditors during the preceding 90 days can be voided by the bankruptcy trustee and brought into the bankruptcy estate. That would most likely include any payments made to you for that past debt – meaning that you could be forced to pay that money to the bankruptcy estate so that it could be distributed among all the debtor’s creditors. In fact, if the debtor is your relative, that 90 days can be extended to a year! The purpose of this rule is to make sure that all creditors are treated equally and fairly and to avoid preferential treatment of any particular creditor by the debtor (such as a relative or valued service provider whom the debtor might be inclined to want to favor over, say, American Express).
Just another thing to keep in mind before you decide to lend your financially strapped friend a helping hand!
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