Christmas Gifts and Bankruptcy: Avoiding Non-Dischargeable Debt During the Holidays

If you are planning on filing for bankruptcy after the holiday season, you may be tempted to rack up extra debt by spending more on celebrations, travel, and gifts in the hope it will be discharged when you file for bankruptcy. However, racking up last-minute debt in the months before you file for bankruptcy may cause your creditors to block these debts from being discharged, or even file criminal charges against you for bankruptcy fraud. There are several steps you should take this holiday season to avoid accumulating debt that will hurt you after you file for bankruptcy.

Do Not Take on Additional Debt That You Have No Ability to Repay

You can be charged with bankruptcy fraud if you use your credit cards to purchase items that you know you will not be able to pay for. The credit card company can allege fraud if they show you had no ability to pay for things you bought on credit within 70 days before filing for bankruptcy. It may be tempting to max out your credit cards during the holiday season knowing you will soon be filing for bankruptcy anyways. But the law allows credit card companies to recover against you for doing this. Make sure you avoid committing bankruptcy fraud this holiday season, or else you could end up with serious legal problems in the future.

Do Not Make Large Gifts to Friends and Family

Bankruptcy law does not allow you to simply gift your money, property, or other assets away in anticipation of filing for bankruptcy. When you file, the bankruptcy trustee will look at your financial history from the past year to see if you made any major asset transfers. The trustee can then demand the assets back from whoever you gifted them to. This can cause major financial problems for your loved ones if they spent or sold some or all of what you gifted them. Be sure to consult with a bankruptcy attorney before gifting a car, land, valuables, or a large amount of cash to a loved one this holiday season.

Do Not Spend Large Amounts of Money on Gifts or Other “Luxury Goods and Services”

Bankruptcy law presumes all unnecessary credit card purchases of more than $800.00 made within 90 days of filing for bankruptcy are nondischargeable. This means you will still have to pay them back after you file for bankruptcy. The law defines these “luxury goods and services” purchases as encompassing things that are not “reasonably necessary” to support you (the debtor) or your dependents. You do not need to worry about credit you spend on gas, groceries, or necessary car and home repairs falling under the “luxury goods and services” presumption. But you can be confident you will not be able to discharge credit card debt you rack up on expensive vacations, jewelry, gifts, clothes, or other recreational goods and services this holiday season.

If you have any questions about what to do in preparation for filing bankruptcy, contact the Indiana bankruptcy attorneys of McNeely Law today.

This McNeelyLaw LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.