It’s a very common question:
“I can’t afford to file bankruptcy. Can I borrow money from my parents (or a relative) to pay my attorney?”
The short answer is: Yes — in many cases, you can.
But there are important rules to follow.
Let’s walk through it carefully.
📌 Yes, You Can Borrow — But It Must Be Handled Properly
Borrowing money from family to pay bankruptcy attorney fees is generally allowed.
However:
- The transaction must be fully disclosed in your bankruptcy paperwork.
- It must be structured properly.
- You should not repay them before filing unless your attorney advises it.
Transparency is critical.
⚖️ Why Disclosure Matters
When you file bankruptcy, you must list:
- All debts
- All recent transfers
- All loans — including informal family loans
If your parents lend you $2,000 to file, that loan:
- Must be disclosed.
- May be listed as a debt in your bankruptcy schedules.
Even if everyone intends it as a “favor,” legally it is a loan if repayment is expected.
Failure to disclose can create serious problems.
🚩 Do NOT Repay Family Before Filing
This is where people get into trouble.
If you borrow money from family and then repay them before filing, that may be considered a preference or even a fraudulent transfer.
Remember:
- Payments to insiders (family members) are reviewed for up to 1 year before filing.
- Trustees can demand repayment from family members.
The safest approach is usually:
- Borrow the money.
- Use it to pay your attorney.
- Do not repay the family member before filing.
- Disclose the loan properly.
Your attorney will guide you.
💰 What Happens to the Family Loan?
If the loan is legitimate and repayment is expected:
- It becomes an unsecured debt.
- It may be discharged in Chapter 7.
- In Chapter 13, it may receive the same treatment as other unsecured creditors.
Some families choose not to expect repayment — but that must still be handled correctly and disclosed.
🧾 What If It’s a Gift, Not a Loan?
If your family gives you the money with no expectation of repayment, it is a gift.
That is usually simpler.
But even gifts must be disclosed if they fall within reporting requirements.
Your attorney will determine how it should be characterized.
🛑 What You Should NOT Do
Do not:
- Hide the loan.
- Repay family secretly before filing.
- Transfer property in exchange for help.
- Make side agreements that aren’t disclosed.
Bankruptcy courts care far more about honesty than about where the money came from.
📌 The Bottom Line
Yes, you can borrow money from family to file bankruptcy.
But:
- It must be disclosed.
- It must be structured properly.
- Repaying them before filing can create problems.
- Transparency protects your discharge.
If you need help covering filing costs, talk openly with your attorney. Planning ahead avoids complications later.
