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Paying A Family Member With Tax Refund

In every initial consultation, I ask how much was the person’s tax refund. Next, I ask how much was used to repay a debt owed to a family member.

I don’t ask if they paid a family member, I’m asking how much was paid to a family member, because more than half of the people I see have repaid a family member with their tax refund money.

It’s not “if” they paid a family member; it’s “how much” they paid a family member! The bigger the refund, the greater the chances of a repayment to a family member.

How much is “too much?” How soon is “too soon?”

When you repay a debt to a family member, you make that family member a target for the bankruptcy trustee if that payment was made in the 365 days before you file your bankruptcy case. The trustee can go after the family member for that payment.

It doesn’t matter that you may have repaid the family member in cash.

As a practical matter, however, if the amount of the payment was small, then it will not be enough for the trustee to go after. If the payment was big enough to make the family member a target, then we would simply delay the filing of the case until at least 366 days have passed since the payment was made.

If you are expecting a large tax refund, then you need to talk with your bankruptcy lawyer about performing “bankruptcy estate planning.” That’s a nice term to describe the game plan for determining how you will spend your tax refund before you file bankruptcy.

Sometimes, the best advice is to hold onto the money, then repay the family member after the bankruptcy case is filed.

Each situation is different, so there is no “across-the-board” advice, other than don’t repay a family member if you think you are going to file bankruptcy in the next 365 days.

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