Quote Quoting llworking
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Even when the money paid was based on a loan that must be repaid, bankruptcy or not?
I agree with despritfreya that the source of the money the OP used to make the loan to the insider is not relevant here. He could have used his pension loan for anything, but instead elected to use it to pay off part of the loan he had with the relative. And that's a preferential payment to the relative when made within the year before filing the bankruptcy petition.

And most pension loans technically don't have to be repaid. With the typical pension loan the pension trust is not going to sue to get that money back, after all. Rather, what happens is that if the loan is not repaid in time the pension trust will treat it as a distribution from his/her pension of the amount that was outstanding. So failure to pay would result in taxable income to the OP and perhaps a penalty for early distribution from the pension.