A lot of people are falling on hard times, and most people's highest expense each month is rent.  For those lucky enough to have a friend or family member let them move in, this can really help with rising expenses.

As is often the case, however, just eliminating or reducing rent is not always enough to alleviate the problem, and a trip to your local Bankruptcy attorney frequently follows.

There are a couple of considerations that you should be aware of before moving back home and then filing a Bankruptcy case.

First, if the lease for your old rental unit has not expired, you will likely be responsible for the rent due for the remainder of the lease.  For example, if you move out in April, but your lease does not expire until December, you will probably be responsible for the rent for the months of May though December, and this is certainly something that should be included in your Bankruptcy case.

Also, it is very important to document the condition of the property on your move out, because sometimes one way for landlords to circumvent the Bankruptcy discharge is to allege that damage done to the property occurred after you filed for Bankruptcy.  So, use your cell phone to take detailed video and pictures of the condition of the property documenting the date and time of the move-out.

Once you move in with your parents, friends, or family members, there will be a desire to either pay them rent, or to help pay some of the household expenses.  This is where things can get a little complicated during the Bankruptcy process.  Today, most people like to send money electronically, via peer-to-peer cash transfer applications like Zelle, CashApp, Apple Pay, & Google Pay.  While these can be convenient, they create an electronic trail on your bank statement that will have to be explained during your Bankruptcy process.

By way of background, the Bankruptcy Code does not like transfers of money or property to ordinary creditors in the 90 days leading up to the Bankruptcy filing because they deem such transfers as “preferential” (that is to say, you are “preferring” to pay one creditor over another).  For friends and family members (called “Insiders” in Bankruptcy), the “preference period” is much longer.  Depending on which statute is used, transfers to insiders can stretch back one, two, (or in the case of Washington State) sometimes up to four years.  Since it is often the case that we also usually borrow money from friends or family members as we enter economic hard times, it is hard to differentiate between a payment to Mom for rent versus a payment to Mom for the loan she gave you last year.  If you do not document how and why you are making the payment, you could open your friend or family member up to a lawsuit by the Ch. 7 Trustee to recover the money that you paid, even if it was for rent or some other normal ongoing expense.  Also, the support that your friend or family member may be giving you for your other monthly expenses must be documented for the court on your Bankruptcy schedules.

For this reason, it is very important to sit down with an experienced Bankruptcy attorney as soon as possible and not just talk about your debts, but also how you are handling your ongoing monthly expenses and whether you need to make some adjustments to keep your payments to your friends and family members acceptable in the Bankruptcy process.  It is a good thing when a friend or family member can help you out, but it is a tragedy when that generosity comes back to bite them over an innocent financial transaction.