This is one of the most common — and most emotional — questions we hear:
“My parents helped me when I was struggling. Can I pay them back before I file bankruptcy?”
It feels like the right thing to do.
But legally, it can create a serious problem.
Let’s explain why.
📌 Bankruptcy Is About Equal Treatment
Bankruptcy law is built on one core principle:
All similarly situated creditors must be treated equally.
If you repay one creditor in full right before filing — especially a family member — while other creditors get nothing, that’s considered preferential treatment.
Even if your intentions were good.
⏳ The One-Year Rule for Family Members
When it comes to repaying family, the rules are stricter.
Trustees can look back:
- 90 days before filing for regular creditors
- 1 year before filing for “insiders” — including parents, siblings, children, and close relatives
If you repay your parents within one year before filing, the trustee can demand that money back.
💰 What Happens If I Already Repaid Them?
If you repaid your parents within that one-year window:
- The trustee may send them a demand letter.
- If they refuse, the trustee can file a lawsuit (an adversary proceeding).
- Your parents could be required to return the money to the bankruptcy estate.
It doesn’t mean you did something criminal.
It means the law requires fairness among creditors.
🚩 Does This Affect My Discharge?
Usually, no — as long as:
- You fully disclose the repayment.
- You did not conceal it.
- You are transparent in your filings.
Failing to disclose the transfer is far more dangerous than making it.
Honesty protects your discharge.
🤔 What If It Was Just a Small Amount?
Trustees generally look at:
- Total payments made
- Whether the amount justifies recovery
- Administrative cost vs. benefit
Small payments may not be pursued — but there’s no automatic safe amount.
Every case is fact-specific.
💡 What Should I Do If I Want to Repay Them?
Before making any repayment:
✔ Speak with a bankruptcy attorney.
✔ Review the timing of your planned filing.
✔ Consider whether waiting to file changes exposure.
✔ Discuss whether repayment after discharge makes more sense.
In many cases, it’s safer to file first — then voluntarily repay family later if you choose.
📌 Bottom Line
Repaying your parents before filing bankruptcy can create a preference problem.
The trustee can recover those funds — even if your intentions were honorable.
The safest path is:
- Full disclosure
- Careful timing
- Professional advice before transferring money
Bankruptcy isn’t about punishing family support — it’s about ensuring equal treatment under the law.
