Why a Shopping Spree Just Before Bankruptcy Won’t Work
The thinking goes, “what have I got to lose?” Or so one imagines the words people say to themselves who max out their still-working credit cards right before filing for bankruptcy.
That approach is wrong on several levels. If you’ve got an itch to spend the remaining balances of your credit cards before you file, consider these points:
- Asset exemptions limited and vary by state – Depending on where you live and where you file, you are allowed to keep only a limited number of items in a Chapter 7 filing. For example, you may have to sell your home to pay off debts but be allowed to keep $5,000 of the value in a car (Maine), or $1,000 of jewelry, art and watches (New York).
- A judge can rule your spending as fraud – Keep in mind that a bankruptcy judge has to approve the filing. If he or she sees that unnecessary charges were run up in the weeks or months preceding a filing – at a time when the filing appeared to be inevitable – the judge can rule it fraudulent.
- Maybe Chapter 13 is a better option – If you have a stream of income that over time could cover your debt, the better filing is a Chapter 13 bankruptcy. By adding additional expenses to your debt, you only make it harder to satisfy the requirements of your three to five year plan to pay off debts.
It’s far better to approach the bankruptcy with a true sense of thrift. A qualified bankruptcy attorney can guide you on which expenses may be deemed legitimate.