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The bankruptcy process
Relative
In the Bankruptcy Code, a relative is a person related by blood or by marriage within the third degree, as the common law counts degrees, or a person in a step or adoptive relationship within that same degree. 1
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The statute's words are consanguinity, for a relationship by blood, and affinity, for a relationship by marriage. The definition counts degrees of relationship. It does not ask whether the person lives with you or how close you are. 1
The term matters because of insiders. When the debtor is an individual, a relative of the debtor is an insider under the Bankruptcy Code. 1
Insiders face a longer look-back. A payment to a creditor can be challenged as a preference if it was made in the 90 days before the bankruptcy filing and gave that creditor more than it would receive in a Chapter 7 liquidation. If the creditor was an insider, the period is one year. 2
Repaying a parent or a sibling before filing is therefore something a trustee may ask about. Whether a particular family member falls within the third degree is a legal question to check with a bankruptcy lawyer. 1 2
Common questions
Is a relative always an insider?
When the debtor is an individual, the insider category includes a relative of the debtor. 1
Why does it matter if I repaid a family member?
A payment to an insider can be a preference if it was made within one year before filing, compared with 90 days for other creditors. A preference may be avoided and recovered, subject to court approval. 2
Are step and adoptive family members included?
Yes. The definition covers an individual in a step or adoptive relationship within the third degree. 1
Sources
Repaid or transferred something to family before filing?
A bankruptcy lawyer in your state can tell you how those payments are likely to be treated.
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