For bankruptcy practitioners, the holidays pose a major concern when trying to prepare a person’s petition and schedules who will be filing for bankruptcy. More often than not, people will spend monies that may be available on gifts for relatives and friends rather than pay off creditors. While trustees, who oversee and administer bankruptcy cases, understand and appreciate the practice of gift-giving during the holiday season, there is a gray area that could present difficulties. A trustee can seek to recover those gifts, or the monetary value thereof, so as to pay off creditors. With some planning and conservative approaches, however, a person filing bankruptcy can spend down and make purchases without running afoul of what is allowable in bankruptcy.
First, credit cards MUST NOT be used. Purchases made on credit immediately preceding the filing of a bankruptcy may not be dischargeable. By using credit when you purport to be insolvent, a trustee may seek to deny your discharge for abuse of the bankruptcy system. Moreover, the creditor may seek to have the debt owed to it deemed nondischargeable since the debt was incurred while a debtor purports to be insolvent. If you are going to make gift purchases, make them in cash.
Next, you should evaluate gifts as a “want” versus a “need.” If you are buying a gift for your children, for example, avoid making “want” purchases. If they need clothing or supplies for school, use money for those “needs,” and avoid spending money on “wants,” such as electronics. Electronics are especially difficult because they tend to retain value, and a market for them exists. A trustee can easily demand turnover of a television or tablet for sale. Imagine a friend or relative who received a gift from you and then being served with a demand for turnover – it can easily turn the holidays sour.
Finally, think about larger “need” purchases. Repairs around the house, health insurance, car repairs, education accounts. Maybe not as fun as video games, but purchases like these tend to be the kind that people need but put off. Using money to make these purchases is generally safe in bankruptcy, so you generally will not be facing a demand for turnover for the trustee.
As the holiday shopping season kicks off, if you are thinking about bankruptcy, do not believe that you can buy what you want and then file bankruptcy after without issues. The bankruptcy system is not to be abused, and lawyers and trustees are there to protect the integrity of the system. If you have questions about bankruptcy, call the Law Office of Richard Kistnen, (718) 738-2324, or visit www.kistnenlaw.com.