Sorry to resurrect an old thread, but I note that in fact you're both wrong. I got to this via Google, so others may too. First off:
In American English, collective nouns are almost always treated as singular. In British English, it often depends on whether the speaker/writer sees the noun as a unit or as individuals. That seems to defeat the purpose of collective nouns, but that is how it is. 8)
You're mostly right, but your last comment is ill-informed. In British English, it depends whether you are talking about your family as a unit ("my family is from Italy") or as a collection of individuals ("my family are friendly" = "all the people in my family are friendly"; also "my family is friendly"). Although you can treat the family as a single unit (collective noun) or as a
collection of individuals, it's still a collective form, and therefore doesn't defeat the purpose of a collective noun.
when you speak of your family or a family in general, you are talking about a single group. So, family is, is the correct usage. One exception is "the people in my family are crazy, nice......whatever. This is because you have changed the subject to a plural, people.
Bad example. The subject of your sentence has changed from "family" to "people" - you're actually saying "the people [...] are crazy", which deviates from what the original poster was asking, and introduces an irrelevancy, since we would never say "the people [...] is". The fact that they are also "in my family" is supplementary information and not directly relevant.