Business loan from sister

[mcordry]

I borrowed about $41,000 from my sister to help my business 2 1/2 years ago and have been paying her on time ever since. As well as paying her we have paid our credit cards on time. I am contemplating declaring chapter 7 and I know that any payments to family members are considered "preferred". As soon as I stop paying credit cards I will stop paying her also ( and hopefully continue after discharge) . Will the trustee go back and take the money I have paid her for the past 2 years. although I have been current (up until now) with all of our payments.

[keepmine]

You do have a preference issue and the trustee could clawback payments made within a year of filing.

[justbroke]

If you have been paying all your creditors at least the minimum payment (as well as your family member) and never "preferred" one over the other, then there is no preference. Whether it is a preference, in this particular circumstance, would be whether the debtor was insolvent at the time. It does not read as such. As soon as your insolvent, you need to stop paying your unsecured creditors. Any payment to an "insider" (your relative) would be an insider preference within a year of filing if you treated them differently. It does not read that you treated the relative differently, but only someone with intimate details of the payment history to the family member and the other unsecured debt, could tell.

If your family member actually placed a lien upon the property/inventory of the business, then this would be a secured debt and not a preference. Additionally, debts in the ordinary course of business may be exempt from this. It really depends on how this loan was structured.