Most of us have a tendency to overspend during the holiday season, even when we’re months behind on our credit card payments and other bills. Although you want your loved ones to have a memorable Christmas morning, excessive spending during the months leading up to bankruptcy can cause serious problems for your case.
If you believe that debt resolution through bankruptcy will be part of your January 2020 agenda, then below are some tips that can prevent you from making some major mistakes.
Avoid debt you don’t intend to repay
You may be tempted to max out your credit cards on holiday presents, knowing that you plan to discharge the debt in a Chapter 7 bankruptcy. It’s easy to forget that you’re not the only one who has ever gone this route. Credit card providers will review your pre-bankruptcy charges for any evidence of fraud, so that gold watch for your spouse or now iPad for your teen could inspire an objection to your discharge.
Another issue to consider is that under the Bankruptcy Code, credit card purchases for “luxury goods or services” that total more than $725 are presumed to be nondischargeable if made within 90 days prior to filing a bankruptcy case. Groceries and other essentials will be allowed, but Christmas presents likely won’t be, so put the cards away until it’s time to surrender them.
Don’t make high-value property transfers
You don’t want to create a legal dilemma by racking up debt you can’t repay, so you decide to sign over title to your Catskills cottage to your son and his wife as a holiday present. Don’t do it: the bankruptcy laws prohibit large property transfers prior to filing and your Chapter 7 trustee can go after your son and daughter-in-law to reclaim the home.
Watch that holiday income
If you don’t want to jeopardize your future bankruptcy discharge by running up debt or transferring assets, then you may work extra hours or take on an extra seasonal job for gift money. While this may be the best solution, it can also be problematic when your disposable income is later calculated for bankruptcy purposes.
In general, your last six months of income is used to assess your ability to repay your debts, and that extra December cash can prevent you from filing for Chapter 7. You may have to repay everything over a three to five-year Chapter 13 plan.
Although you may not intend to file until January, consulting with a New York bankruptcy attorney now can help ensure that you don’t unintentionally make matters worse while trying to give your family some extra joy this holiday season. Legal advice now can prevent bankruptcy problems later on.
Jayson Lutzky is a bankruptcy lawyer with an office in the Morris Park neighborhood of the Bronx. He offers free in-person initial consultations. He can help you determine if Chapter 7 bankruptcy is right for you. Call 718-514-6619 to set up an appointment or visit www.MyNewYorkCityLawyer.com/Bankruptcy to learn more.