The busiest time for consumer bankruptcy filings is in March of every year. At least it is for our office. I believe that is for a couple of reasons, with the main reason being that people use their tax refunds (that they receive in March) to pay for a bankruptcy filing. That means that in the preceding 90 days, those same people may have spent a relatively significant amount of money buying gifts for family, and possibly charging those gifts on their credit cards. So, how, if at all, does that holiday spending affect someone who files for bankruptcy within 90 days afterward?
First off, even if you paid for the gifts with cash, there are a couple of minor issues. One is that any gift given to anyone in the past 2 years that was worth more than $600 must be disclosed in the Statement of Financial Affairs that gets filed with the bankruptcy petition & schedules. So, if you took Lexus’ advice and made it a “December to Remember”, well, that might cause some problems. Generally, a gift of just over $600 will not prompt your case trustee to take any action to recover that gift. But, if that was a bigger gift, say you got engaged and bought a $3,000 engagement ring – well that might cause a problem with the trustee wanting to get it back. But, don’t worry too much about it as there are always ways to deal with a situation like that. Just understand it may require making some payments to the trustee to account for those large gifts given away prior to filing your case.
Secondly, if you charged those gifts to your credit cards, then the credit card lender might have a case for having those charges declared “non-dischargeable” (meaning that those charges don’t get wiped out in the bankruptcy). Here is the rule that applies to “luxury goods purchases” put on a credit card or paid with a cash advance just prior to filing, and our standard advice to prospective new clients regarding that issue:
Debts For Luxury Goods Purchases And Cash Advances, whether on a credit card or a “signature loan,” can be non-dischargeable. Luxury goods purchases incurred in the 90 days prior to filing and totaling $675 or more for one creditor are not dischargeable. Cash advances totaling more than $950 obtained within 70 days before filing are not dischargeable. These types of debts can also result in an objection to your case even if incurred more than 90 days prior to filing if the debts are for a large amount. However, it is much more difficult for a creditor to prevail under those circumstances. In any case, the creditor may accept a settlement or may elect to take this issue before the Court in a trial. WM Law charges $225 per hour for defending this type of issue.
Bottom line, if you are facing bankruptcy, the best bet is to be frugal with gift giving in the weeks and months preceding your case filing. You can still be a good Santa Claus with reasonably priced gifts.
By Jeff Wagner, W M Law President