An insider payment is when you borrow money from a friend or family member and repay them within twelve months prior to filing your bankruptcy case.
The significance of an insider payment is that the trustee can make you pay the bankruptcy estate the same amount of your insider payment in order to get your bankruptcy discharged. For example, six months prior to filing your bankruptcy case, you repaid your mom $5,000. Because you chose to repay your mom instead of using that money to pay your creditors the trustee will require you to pay him/her $5,000. The trustee in turn takes that $5,000 and uses it to pay creditors.
Your other option is to wait to file until the twelve months have expired since the time of your insider payment. We strongly recommend not repaying friends or family members during your bankruptcy process to avoid this as an issue in your case.
An insider payment is different from a gift because it is a repayment. Any gifts over $600 to any one individual two years prior to filing your bankruptcy case or any charitable donations need to be disclosed as well on your paperwork.
Any insider payment regardless of the amount of the repayment is required to be disclosed. If you have any questions about an insider payment and how it may potentially affect your bankruptcy case, it is best to consult with an attorney to determine the best time to file your case.
There is something called a right to set off. This means that a banking institution can take money from your checking or savings account to make a payment on another debt such as a credit card or car loan that you owe the bank. If you are behind on your payments the terms of the contract will allow the bank to do that. It is completely legal. If you are filing for bankruptcy and cannot afford the credit card payments, it is advisable to get a new account at a banking institution where you don’t owe them any money. That is one reason why banks offer credit or incentives to use their bank.
Once a bankruptcy is filed, the automatic stay under the bankruptcy code should limit the bank’s right to a set off. Once your bankruptcy is filed, the law prohibits a setoff of any debt that arose prior to the filing of your bankruptcy petition from any creditor. However, it is still a safe practice to use a bank where you have no credit lines. There are still occasions where creditors violate the automatic stay and while we can get it corrected, it can take some time to do so. There are so many banking options, it is better to be safe than unable to pay your bills or mortgage payment because the bank took their offset. .
If you have any questions about whether a creditor took inappropriate action, reach out to us for assistance and we are happy to evaluate the circumstances.
