Am I required to do what the bankruptcy court states if I am in bankruptcy?

Full question:

I borrowed money from a family member who has not filed bankruptcy. The bankruptcy court is asking that I pay back what is due to her immediately even though the written agreement we have has been honored and paid back based on the guidelines we set at the time of the loan. Often times I paid back more than was agreed upon. I am unsure how to respond to their summons for written response?

• Category: Bankruptcy
• Date: 04/07/2025
• State: Michigan

Answer:

Under 11 USC § 542(b), with certain limited exceptions, an entity that owes a debt (e.g. a tax refund) to the debtor that is property of the estate and that is matured, payable on demand, or payable on order must pay such debt to or on the order of the trustee, subject to any setoff rights under 11 USC § 553.

Pursuant to Bankruptcy Rules 1007 and 4002(3) and the bankruptcy forms, a
debtor must file schedules disclosing any assets, including a bank account, along with the
account number, name and location of the bank, or if the schedules are not filed immediately, a
list of debts owed to the debtor and payable on demand. At the time of filing, the trustee
becomes the representative of the estate and has the responsibility to secure property of the estate and to seek payment of debts owed to a debtor. The Bankruptcy Rules contemplate that the Trustee will give the notices necessary to ensure that property of the estate is paid to the trustee. See Fed. R. Bankr. P. 2015(a)(4). Assuming the debtor has filed the appropriate schedules or lists, the trustee should have the information necessary to ensure that debts owed to the debtor are paid to the trustee in his or her capacity as representative of the estate.

Section 542 of the Bankruptcy Code, with certain exceptions, requires an entity to turn over to the bankruptcy trustee any property of the debtor and to pay the trustee any debts owed to the
debtor.

It is possible that you have a right of offset against the amount owed to the debtor. There may be an acceleration clause in the loan contract that triggers payments due in the event of bankruptcy. I suggest contacting a local attorney who can review al lthe facts and documents invovled.

The following is a Bankruptcy Code section delaing with the right of offset:

§ 553. Setoff

How Current is This?

(a) Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case, except to the extent that—

(1) the claim of such creditor against the debtor is disallowed;

(2) such claim was transferred, by an entity other than the debtor, to such creditor—

(A) after the commencement of the case; or

(B)

(i) after 90 days before the date of the filing of the petition; and

(ii) while the debtor was insolvent (except for a setoff of a kind described in section 362 (b)(6), 362 (b)(7), 362 (b)(17), 362(b)(27), 555, 556, 559, 560, or 561); or

(3) the debt owed to the debtor by such creditor was incurred by such creditor—

(A) after 90 days before the date of the filing of the petition;

(B) while the debtor was insolvent; and

(C) for the purpose of obtaining a right of setoff against the debtor (except for a setoff of a kind described in section 362 (b)(6), 362 (b)(7), 362 (b)(17), 362 (b)(27), 555, 556, 559, 560, or 561).

(b)

(1) Except with respect to a setoff of a kind described in section 362 (b)(6), 362 (b)(7), 362 (b)(17), 362 (b)(27), 555, 556, 559, 560, 561, 365 (h), 546 (h), or 365 (i)(2) of this title, if a creditor offsets a mutual debt owing to the debtor against a claim against the debtor on or within 90 days before the date of the filing of the petition, then the trustee may recover from such creditor the amount so offset to the extent that any insufficiency on the date of such setoff is less than the insufficiency on the later of—

(A) 90 days before the date of the filing of the petition; and

(B) the first date during the 90 days immediately preceding the date of the filing of the petition on which there is an insufficiency.

(2) In this subsection, “insufficiency” means amount, if any, by which a claim against the debtor exceeds a mutual debt owing to the debtor by the holder of such claim.

(c) For the purposes of this section, the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the filing of the petition.