Getting Loans from Family and Friends During Bankruptcy

This bankruptcy information is intended for residents of England, Wales, and Northern Ireland. You may refer to Scotland sequestration for details about bankruptcy.

If you are struggling to cope up with your debts, you are sure to rely on borrowing money from your family and friends. This is because the money you loan from them can be paid at a later time and sometimes without any interest at stake. These circumstances can turn into a turmoil while enduring bankruptcy if you:

  • Get a loan from someone with an agreement to pay it back when you get bankruptcy discharge order
  • Pay a loan that you owe to someone you get acquainted two years ago
  • Disposed or gave valuable possessions to someone you get acquainted with for five years that pass

So, might as well decide whether bankruptcy is right for you if it could affect someone you know.

Borrowing money from your family or close friends is not uncommon. In fact, most individuals are on the same plate especially those who are insolvent. While bankruptcy may be the only resort to your indebtedness or insolvency, you must make sure that you are not comprising any relationships. This can happen because of the bankruptcy restrictions that you need to follow.

Restriction of bankruptcy in relation to my loans from family and friends

The situations listed above need to be settled so as not to affect you or the person when considering bankruptcy.

What happens if I pay the money I owe to someone before bankruptcy?

Since your case will be handled by an OR or official receiver, your OR can tell the person to return the payments under the following circumstances:

  • You’ve obviously prefer to pay the person instead of prioritizing your debts
  • You know that your finances can no longer hold your living costs and debt
  • It wasn’t over two years since you’ve made the payments

When the official receiver urged the person to return the amount you paid, the OR can file court complaints in case the person refuses to obey.

The money collected will be utilized to cover certain costs and will be proportionally divided to pay all your creditors. This method is known as ‘reversing preference’. The OR defines the payments you made as ‘preferences’.

The same process applies when paying a creditor that you don’t personally know. However, the money can be return when the payment is made six months before your bankruptcy.

The official receiver has the power to restrict the orders on your bankruptcy duties, prolonging your discharge and length of restrictions.

What happens if I pay the money I owe to someone after bankruptcy?

The loans you owe are perceived equally with your other loan in bankruptcy. This can mean that you can stop paying those loans when declared bankrupt.

The official receiver will sell your assets or give you a period of three years to compensate for your debts. So, the people you know whom you owe money will get an equal portion of the money raised by the OR.

When given the order to pay the official receiver through IPA or income payment arrangement, the OR can file court complaints if you disobey in paying the people you know.

Moreover, creditors cannot take legal actions against you when you are declared bankrupt. This will include the people you know. However, if you are unable to settle your loan, this may result in a gap within your relationship with family and friends. Besides, if the loan is not too much to bear, you can pay by offering services or odd jobs.

What happens if I sell assets before bankruptcy?

When you give away assets or money to the people you know directly before going on bankrupt, the Or will urge the person or people to return such payments.

Examples of assets that you can dispose are as follows:

  • Items with a value like pieces of jewelry or machines not related to your trade
  • Investments or shares in monetary value
  • Vehicles and Properties

What happens if I sell assets lesser than its value?

The official receiver can ask the buyer of your asset to pay the difference. In fact, an official receiver can implement undertakings to extend or prolonged your bankruptcy in the event of fraud and dishonesty. The event of selling your possessions is referred to as ‘transaction at an undervalue’.

In case, the buyer or person refuses to return the asset or pay the difference, the OR can take legal action against them. This applies to goods or assets sold not more than 5 years or not more than 2 years to an unknown creditor.

Will my OR be aware of my payments and assets?

When you declare bankruptcy, you will be asked to fill out a statement of affairs form which asks you to detail all the assets you currently possess, sold, or had given away. Everything stated in the form must be all true. So, you have to be completely honest when filling out the form.

Moreover, the OR will scrutinize your finances after your bankruptcy, including your bank accounts. They can also notify your creditors for further details about your financial status. It can help if you remain honest with all the information you provided to prevent prolonging your bankruptcy.

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