Insider

An insider can be any relative of the filing debtor, a general partner of the debtor, a corporation of which the debtor is legally associated, a corporate entity in control of the debtor, or a partnership where the debtor is a general partner.

Insiders are treated differently in bankruptcy law. For instance, if a person is regarded as an insider by the bankruptcy court, the look back time the court can consider property transfers is one year. For any other person or entity not considered an insider, the look back time is 90 days. This may come as a shock to the uncle who was repaid a debt by his nephew six months before his nephew files for bankruptcy protection. The bankruptcy court might see the payment as preferential payments to an insider and take the money back as part of the bankruptcy estate.

Another example of an insider situation comes within the context of filing a Chapter 11 bankruptcy. An insider is not allowed to vote for or against the proposed repayment plan of a Chapter 11, and they have restrictions on their rights that other creditors do not. For instance, a Chapter 11 creditor committee may suggest a plan that seems unfair to an insider that is a creditor of the filing debtor. Additionally, the insider may not have the right in some cases to formally object within certain phases of the bankruptcy process.