Times are tough and you are struggling to make ends meet. Should you turn to your family for help?Shakespeare once warned “neither a borrower or a lender be,” however, in today’s economic climate, we sometimes need to ask for help.
There are two ways to borrow money from family; a loan that you intend to pay back or a monetary gift.
If you do decide to ask for help, start by determining if there is an expectation that the money will be returned. If your parents offer to give you a gift of money, in 2018, they can give you up to $15,000 without either of you having to pay taxes on the amount.
However, if the money is a loan, be clear on what the payment plan will be:
1. Put the plan in writing. This may seem like a silly step between family members, however, our experience has shown that many relationships are permanently impaired when each party remembers the loan details differently. Putting it in writing ensures both parties are agreeing to the same plan. This is a good policy regardless of whom you are borrowing from. Put it in writing so as to avoid misunderstandings.
2. Create a repayment plan that is realistic. If you know you can afford to pay $100 a month then resist the urge to agree to a larger amount just so you can look like you will be free from debt quicker. It is better to under promise than to experience stress in the future because you can’t afford the payment.
3. Resist the urge to have the monthly payment slide because it is family. Treat this expense as seriously as you would your mortgage or utilities. This is the only family you have. Treat them with the same respect you would another lender.
4. If you know you are going to miss a payment, be honest. This is true no matter who the lender is. It is always better to be upfront and honest than to find yourself avoiding your family because you missed a payment.
5. They are still your family first. Don’t let the loan be the only thing you think about when you see them. If they agree to the amount and the repayment plan, then respect that. This is important for the lender to remember as well. If the loan payments are current, don’t begrudge your family making a purchase that you feel is extravagant or unnecessary.
There is famous a Fraser television episode where the lead character Fraser, lens $1,000 to his co-worker, Roz. When next they met he noticed she had been to a spa and became incensed that she would be that free-wheeling with her money only to discover she had used a gift certificate. It was an embarrassing, degrading and unfortunate conversation that almost ruined their relationship. Don’t make that mistake. Don’t go out an buy a new car while you still owe your family money. Pay off your debts and then buy the new car – but only if your budget can afford it.
NOTE: If you do file for bankruptcy after having borrowed money from your family, the bankruptcy code will treat your family as “insiders.” This means that the bankruptcy trustee can reach back a year and recapture all payments made to your family. For this reason, if you contemplate filing for bankruptcy, treat monies advanced to you by your family as a gift. After your bankruptcy is closed and you have earned a fresh start, you will be free to repay your family if that is what you feel convicted to do.
Remember to seek help when your finances become overwhelming. At Bankruptcy Advocates, we offer a first-time free consultation. So before you borrow money, give us a call so that we can help you review your situation and put together a plan of action that is best for your future financial health.
Southern Illinois Bankruptcy Attorney law firm Bankruptcy Advocates is located in Carbondale and serves a wide geographic community. We are a debt relief agency. Our southern Illinois bankruptcy attorneys help people file for relief under the Bankruptcy Code. The first consultation is always free. Give us a call at 618-549-9800 or email us at [email protected] to speak about your case or legal matter. Convenient appointment times are available.