What is a Bankruptcy Insider in Arizona?

Bankruptcy Court can shed light on a variety of different creditor tactics. Notably, Arizona frequently has to face the issue of insider creditors and friendly creditors. Many people, especially when facing hard financial times, would rather borrow money from a family member or friend than take another cash advance on a credit card. So, what happens when you’re filing for bankruptcy? How will your friend or family member receive payment from what you borrowed?

Creditors in Arizona’s Bankruptcy Court frequently try to turn down the importance of an Insider creditor or friendly creditor. Many people try to pay off these private loans, knowing that the unsecured claim may leave this friend or family member out of the bankruptcy process. Here is what it means to pay in Insider either while you’re planning to file for bankruptcy, or even if you’ve had an ongoing payment plan.

Why Shouldn’t You Pay an Insider Within the Year of Filing

Inside creditors typically refer to unsecured loans, but many people can establish the correct documentation to uphold a person-to-person loan. Even with proper documentation, if you know and have a close relationship with this person, they’re still an inside creditor.

For example, if you took a $3,000 loan from a close family friend who is a business owner, they may have gone through the extent of putting together a contract for the loan and repayment terms. That doesn’t change the fact that you received that alone because of that relationship. If you continue to make payments, they are known as preferential payments and can result in legal trouble, not for you but for the person you’re paying.

What are “Preference” Payments

When it comes to a bankruptcy filing, the bankruptcy court itself is required to treat each creditor equally. That means that if you have a bank loan and that with Capital One, the bank is not prioritized over the credit card provider. The idea of this is to reduce the likelihood of preferential payments.

Suppose you make a preferential payment to an unsecured creditor, such as a family member or friend. In that case, it is possible for the bankruptcy estate to go to that person and attempt to recover those payments. The bankruptcy court can do this because the payment itself was preferential, and it was made to an inside creditor.

Make Plans for Paying Back Family Members

If you want to make plans to pay back family members, you should discuss those plans with your Arizona bankruptcy attorney. It is possible that making payments in the year leading up to filing for bankruptcy could put that loved one in an illegally compromised position. It’s also possible that this type of preference payment planning could negatively impact your bankruptcy filing.

To learn more about plans on paying unsecured loans, especially to those who are important to you, speak with your attorney. Historically, Arizona courts have favored the person-to-person element that comes up during bankruptcy. But, just because one case decided that it wasn’t bad faith to be friendly does not mean that it’s going to work out well in your case. Arizona bankruptcy attorneys know that every filing is unique, so speak with them directly.