Nobody really wants to think about their financial woes during the holiday season. However, if you’re already planning on filing bankruptcy after the first of the year — or even think that you might have to consider it — you might want to consider talking with a bankruptcy attorney sooner, rather than later.
The holidays hold some special traps for people who are nearing bankruptcy:
1. Your credit card purchases could get you in trouble
Maybe you’re hoping to get through your holiday spending on credit. Try it, however, and you could end up being accused of trying to defraud your creditors.
The bankruptcy court normally presumes that you incurred all of your debts honestly — and intended to repay them. However, charges you make after you decide to file for bankruptcy and many cash advances within 60 days of your bankruptcy petition are all nondischargeable due to the presumption that you never intended to repay the debts in the first place.
2. The gifts you give are subject to scrutiny
You may not realize this, but the bankruptcy trustee has the power to actually reclaim valuable items that you’ve transferred to other people — even gifts — through something known as a clawback procedure.
Imagine that you’ve been holding onto your grandmother’s expensive diamond ring so that you could propose to your girlfriend with it on Christmas Eve. Unfortunately, you may have to disclose that gift to the bankruptcy trustee — and that could be a big problem if the trustee wants the ring back.
3. Bonus pay can cause you problems
Are you due a big year-end bonus from your employer? If it’s large enough, that has the potential to exclude you from eligibility for Chapter 7 bankruptcy altogether if it pushes you over the limit for the “means” test. The income from the previous six months controls your ability to file, and a significant year-end bonus can make your income during the last half of the year much greater than your income during the first half.
Because of these issues and others, it may be wiser to find out more about your rights during a bankruptcy before the end of the year.