Owing parents and friends money and filing for bankruptcy

June 17th, 2009 by Questions

Due to a divorce I had to borrow money from my parents. I am now selling my house and have to pay them back, when filing for bankruptcy will I have to give that money to my debts before I pay my parents back??

Posted from: Ontario

Questions

One Response to “Owing parents and friends money and filing for bankruptcy”



, A licensed trustee said:

We get different versions of this question on a fairly regular basis. The way you’ve phrased it suggests you don’t think of the money you owe your parents as a debt (just like your credit cards and other bills). From a legal standpoint they are the same – you borrowed money from them and now owe them a debt.

If when you sell your house and you use the proceeds to repay any of your debts (ie your parents) in preference over all of your other debts and then you file for bankruptcy, your trustee will likely be required to contact whomever you repaid and demand the money back. If the creditor (your parents) doesn’t repay the money then the Court will likely order you to pay a similar amount to your trustee for all of your other creditors.

I suggest you go and speak to a trustee BEFORE you sell the house. Perhaps you will have enough money to offer all of your creditors a proposal and that might solve all of your financial problesm without getting you into more trouble.

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