I loaned my cousin money and he’s going bankrupt

I gave my cousin $6500 in June last year to help him out. We agreed he would pay me back in a year. He told me last week that he’s going to file bankruptcy. He said that he can include the cash he owes me and I can get some back he thinks but he isn’t sure. Should I be worried about this ? Will I have to claim this as income?

One Comment

  1. Sounds like your cousin is going to file a chapter 13. Your cousin is required to list all of his debts including yours. In this type of case, your cousin would pay a trustee and then he would pay your cousins creditors. Your debt would be considered “unsecured” so you get what other such creditors are receiving. May be very low pay back and there is no way of telling the percentage pay back unless you know his entire debt and his “disposable income” and his expenses.

    If he is thinking of paying you before the filing of his case, don’t accept more then $599. Anything over this amount could be construed a “preferential transfer”. This doctrine indicates that any payment to a “relative” of $600 or more would be subject to the trustee voiding the transfer and taking back the payment. It is more relevant in chapter 7 case, but still important in chapter 13.

    Anytime you loan money (even to a relative) it is best to have an agreement and try to make the loan secured. To secure the loan, you would need to put a lien on car or home. So, hopefully your cousin will be paying back a good percentage to his unsecured creditors including your loan.

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