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Christmas Gifts and Bankruptcy

For many Americans, overspending is a holiday tradition. According to the National Retail Federation, the average American shopper will spend $804.42 to celebrate this holiday season. For some, this spending season will be followed by a visit to a bankruptcy attorney’s office; so many think, why not throw caution to the wind, spend a little more, and enjoy the season?

There are a few precautions to take when preparing for a bankruptcy filing. The first and most important is to not incur a debt that you have no intention to repay. There is a great temptation to max-out personal credit cards and then discharge the debt during bankruptcy – especially when the credit is used to purchase gifts for other people. However, credit card companies review your pre-bankruptcy purchases to discover fraud. You could face an objection to your bankruptcy discharge or even a criminal complaint! Before using available credit, seek the advice of an experienced bankruptcy attorney.

Another way you can create a bankruptcy issue is by making large gifts to friends and family. For instance, you may sign over a car title as a gift to your son as an act of holiday generosity. Unfortunately, the bankruptcy laws penalize this type of pre-bankruptcy transfer, and your son may lose the car to the Chapter 7 bankruptcy trustee. While the circumstances are different in every case, often you can give your son the car after the case is filed without penalty. Again, the safest route is to discuss any gifts with your bankruptcy attorney before making the transfer.

Finally, some individuals will work overtime or take on a part-time job to afford holiday gifts. This extra income is sometimes problematic when calculating a person’s disposable income for bankruptcy purposes. The Bankruptcy Code looks to the past six months of income and projects the debtor’s ability to repay debts in the future. Inflating your six month average income through overtime or a part-time job can push you out of Chapter 7 and into Chapter 13, or may increase your monthly Chapter 13 plan payment. Before taking on extra income, speak with your attorney.

The holidays are not an excuse to act financially irresponsible. If you are hurting and need to file bankruptcy, get the guidance you need from an experienced bankruptcy attorney and ensure that you don’t make matters worse.