07 Dec What do “insider” and “affiliate” mean and why do I care? – First of a series
The Bankruptcy Code is written in English – but sometimes it’s not in a language we understand. “Insider” is one of the words defined in the Bankruptcy Code. So is “affiliate”. Why does it matter to you?
Well, lots of people borrow money from friends, family and relatives. And then, when they can, they pay them back. That’s nice. But in bankruptcy, that’s dangerous.
In bankruptcy, you have to be honest and make full disclosure. Your bankruptcy petition asks a very specific questions in the Statement of Financial Affairs. One of these questions is whether you have paid anything on any of your debts in the past 90 days to anyone or within the past year to friends, family or relatives or any company with which any of your friends, family or relatives is connected.
Who is an Insider? What is an Affiliate? Why does it matter?
Your family and relatives are “insiders” under the Bankruptcy Code. So are companies they control and partnerships of which they are partners. So are companies in which they are officers or directors. So are your business partners. If you are filing a bankruptcy case for your corporation, it includes any other person or company holding more than 20% interest in the company as well as anyone in control of the company, owner or not. That’s an “affiliate”.
Trustees like to recover preferences
When you disclose a payment to a creditor within 90 days of your bankruptcy case, or to any insider within a year of a bankruptcy case, the trustee may sue the person you paid to get this money back for creditors you didn’t pay. It’s natural to want to pay your family, relatives and other insiders. You care about them more and maybe they can put pressure on you to pay. Bankruptcy likes equal distribution to creditors. So tell your bankruptcy lawyer the whole truth, even if you paid your family back in cash. You can then plan the timing of your bankruptcy case to protect creditors you may have wanted to prefer.
If you hide the truth, you could lose your discharge and maybe even worse.
You must tell the truth in bankruptcy, even if it hurts. If you don’t tell the truth, you may be stuck with all your debts forever. Any you may be committing a bankruptcy crime. That’s bad.
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