Can I use my tax refund to pay my parents back?


I have covered this at least twice in this blog, but NO, you cannot pay back friends or family prior to filing bankruptcy.  When we meet with the bankruptcy trustee, he will ask if you have paid any unsecured creditors back any monies prior to filing.  This is because you have made a “preferential transfer,” where you preferred these unsecured creditors over all of your other unsecured creditors.  Certain creditors, like Mom and Dad, are “insiders.”  I won’t define it for you.  It is obvious.

The trustee will sue some creditors to get those monies back.  The trustee will sue all insiders to get those monies back.  This means that your parents will get sued by the trustee.  The trustee is doing this so that he can use those monies to pay all unsecured creditors equally.

So, no, you cannot pay them back before going bankrupt.  You cannot try to funnel money to them saying it’s for groceries or auto repairs.  It is a bad idea, and your parents will end up being sued for the bankruptcy estate.

This is not legal advice.  If you need help, go to

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