The winter holiday season is already here – and most folks have started their shopping. However, if you’re struggling with your bills and think you may be approaching bankruptcy, you may not be feeling the usual cheer.
You also need to be careful about your spending. Bankruptcy is a legal process that’s designed to protect debtors – but there are safeguards in the system that also protect creditors. Amidst the rush of the season and the pressure to put on a facade that everything’s okay and provide your family with a little holiday joy, it’s perilously easy to run afoul of bankruptcy rules.
What do you need to keep in mind?
Essentially, from the moment that you suspect that bankruptcy is a possibility, you need to put your credit cards away and stop incurring new debts for anything short of essentials – like food, shelter and clothing.
According to the rules, if you use credit to purchase $800 worth of “luxury” goods or services within 90 days before filing for bankruptcy relief (or take cash advances that total $1,100 or more within 70 days of your petition), those debts are presumed to be non-dischargeable. That means that they will remain yours even if debt relief is otherwise granted.
However, because the law considers frivolous spending before bankruptcy to be an abuse of the system, there’s always a possibility that your entire petition could be denied – and you could run the risk of being accused of bankruptcy fraud for abusing the system. In addition, the bankruptcy trustee can – in certain situations – exercise their “clawback” powers to reclaim whatever goods you purchased during that time.
What should you do instead? When it comes to holiday gifts this year, go small. Let your loved ones know that your financial situation is rough and stick to cards or handmade tokens of your affection.
The holiday emphasis on consumerism can be rough to handle when you’re in a financial crisis,. However, bankruptcy can lead to much better days in the future.