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How Holiday Gifting Can Affect Your Bankruptcy Filing

23 December 2015

Alexis Garcia

While there are many differences between chapter 7 and chapter 13 bankruptcy, one of the areas where they share some common rules is when it comes to gifting. Unfortunately, many people put off filing bankruptcy until after the holiday season, simply because they already have enough going on with the business the holidays can bring. However, what people may fail to realize is that holiday gifting, both giving and receiving, can affect your bankruptcy filing in the future. Here are three ways gifting can affect the filing and how to best prevent it from having a negative affect.

Purchasing Large Gifts for Your Family

These days, it is very common for a family to purchase large and expensive gifts during the holidays. You may buy a new television for the family, electronic tablets or laptops for your children, or jewelry and designer purses for your wife. However, if you are getting ready to file for bankruptcy, you should think twice about purchasing these large gifts. When you do file for bankruptcy, you will have to provide the courts and trustee with a list of possessions you have that exceed a certain value. This value varies from state-to-state and can change slightly based on whether you are filing chapter 7 or 13 bankruptcy. However, every state allows you to exempt only a certain value of property, including electronics, clothing, jewelry and other valuable possessions, such as designer clothing. If your possessions exceed this exemption amount, the trustee can take possession of these belongings to sell and pay your creditors back. As such, you want to hold off on buying large gifts so you don't get close to or exceed the exemption amount because of holiday gifting.

Charging Gifts for Your Loved Ones

If money is tight, you may be worried about buying gifts for your children, loved ones and friends. If you are thinking about filing for bankruptcy, you may decide to charge your holiday gifts, thinking that your debt is going to be wiped out during the bankruptcy proceedings anyhow. However, what you may not realize is that there are limits to what you can charge and how close to the filing you can charge these items. If you charge $650 or more 90 days before filing for bankruptcy for luxury goods or service, fraud is presumed and you can't write that debt off. And the rules as to what is considered a luxury good are strict. If it is a necessity, such as food, gas or utility bills, the rule doesn't apply. Pretty much anything else is considered to be a luxury. As such, you need to be careful what you charge if you are planning on filing for bankruptcy in the next 90 days.

Receiving Cash Gifts from Your Loved Ones

It is not uncommon for relatives to send you money during the holiday season instead of purchasing gifts. This is because buying gifts can be time consuming, and most people enjoy cash. However, if you receive cash, you may have to account for this gift when you file for bankruptcy under disposable income. While gifts are not income, the courts may argue that if a relative frequently gifts you a large amount every holiday season, it gives you extra spending money. This extra money should be used to pay creditors back. Once again, the amount of cash you can receive as a gift before you have to declare it varies from state-to-state. However, be aware that if you receive more than a few hundred dollars regularly from a loved one, there is a possibility it can affect you when you go to file for bankruptcy.

If you are thinking about filing for bankruptcy, or simply putting it off until after the holidays are over, you need to know how holiday gifting may affect your filing. This can help ensure you don't make mistakes that can negatively impact your case. Find more information by contacting a lawyer.

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