Thanksgiving Day is coming up soon, and that means black Friday is just around the corner. The holiday will kick off a storm of spending. The average American spends $920 on holiday gifts every year.
This time of year can be rough for people who are experiencing financial problems. There’s a web of expectations and obligations to navigate. Everyone wants to keep up appearances.
What should you know if you’re considering bankruptcy? Should you hold off until after the holidays?
Here’s what you need to know.
If you know need to file bankruptcy, slow down on the holiday gift-giving spree.
In fact, slow down on the holiday gift-giving spree if you even think you might file bankruptcy. Spending $920 on holiday gifts could create trouble, especially if you use credit cards to do it.
If you make credit purchases that exceed $650 within 90 days of your bankruptcy, then those purchases will come under scrutiny. If the court determines these were “luxury” purchases then they will presume you’ve committed fraud: that is, you used the credit and had no intention of paying it back.
Credit card companies often scrutinize your purchase history when you file bankruptcy to determine whether they want to raise a formal complaint to the court. If they successfully argue that you made luxury purchases, then that debt won’t be discharged.
That 90 day period offers a presumption of fraud, but if you make big purchases 120 days before bankruptcy the creditor can still raise the question of whether you ever had any intention of repaying them.
Don’t think you can get around the problem by taking out a cash advance either. Any cash advance larger than $950 made within 70 days of your bankruptcy will automatically trigger the presumption of fraud.
If you’re involved in a Chapter 13 bankruptcy, you may need to adjust the way you do the holidays.
Good news first: trustees don’t scrutinize every purchase you make when you’re on a Chapter 13 plan.
Bad news: the plan is structured to pour all of your disposable income into debt payments. You probably won’t have $920 to spend on gifts. You might not even have $92.
Next year you might be a little more prepared. Buying Christmas gifts throughout the year can make the entire process less burdensome. But this year? Even your small recreation budget might not cover the Christmases you’re used to.
This year, you might suggest the whole family draw names out of a hat to determine which single person they’ll be giving gifts to. Or you might bake cookies and give them out in inexpensive cookie tins (you can usually find them at dollar stores this time of year). If you’re crafty, handcrafted gifts may be the way to go.
No matter what you go with, setting up Christmas traditions that don’t revolve around excessive consumption will help. The holiday season may even end up being a lot more rewarding.
The trustee can’t take your Christmas gifts.
Many people have the opposite problem: they’re not worried about what they can spend so much as they’re afraid the trustee will play Grinch and take all of their Christmas gifts. Worse, they fear the trustee will take all their kid’s Christmas gifts.
You will have to report any major gift given during a Chapter 13 bankruptcy, and large cash gifts could cause you to fail the Chapter 7 means test. But while you might want to steer your family away from large cash gifts or huge, elaborate gifts like new cars, motorcycles, jet skis, or boats, most of your gifts should be safe.
In a Chapter 7 your major assets get sold to pay for debts, but clothing, household goods, and toys are all safe.
Do what’s right for your household, at any time of year.
This might not be the ideal time, but if your finances are out of control bankruptcy might be the only solution. Don’t avoid a fresh start just because you’re wondering what your family members might think.
Instead, take an honest look at your situation and ask yourself whether things are likely to get worse. If the answer is yes, you’re welcome to contact our office for a free consultation at any time.