Today is the biggest shopping day of the year, and many people will be taking to the street in search of the best deals. But if you’re in bankruptcy or close to filing, holiday gift giving, and receiving, can raise some tough questions.
We all want to keep up appearances. Pressures come from every side, from co-workers to family members. Navigating the social side of Christmas can be rough, and there will be many temptations even if you’re in the middle of a financial crisis.
Here’s what you need to know about navigating the holiday season.
Can the trustee take my Christmas gifts?
If you know you’re going to file bankruptcy in January then it’s important to discourage cash gift giving. Significant cash gifts can become a sticking point, either causing you to fail the Chapter 7 means test or create funds which the trustee will want to seize towards paying off your creditors. You’ll also want to discourage huge gifts, such as a new car. A working used car that falls within exemption rules might be okay.
A significant gift given while you’re in the middle of a Chapter 13 may need to be reported. Your best bet is to report the gift to your attorney and then avoid spending it until your lawyer says it’s ok.
Clothing, household items, and other typical Christmas gifts are safe.
When in doubt, contact your attorney before accepting any gifts. You may have to be open with your family about your circumstances. While this is the last thing some people want to do, it may be necessary to avoid problems.
If you receive a cash gift after you file Chapter 7, you’re not in any trouble, so long as the person giving the gift was under no obligation to do so.
Can I give holiday gifts before filing my bankruptcy case?
You’ve got to be super careful.
First, you don’t want to use credit cards, or take out any new debt. That could be construed as an attempt to defraud creditors.
Second, you don’t want to give any gifts that cost over $600, as that could look like a fraudulent transfer.
Instead, restrict yourself to small gifts, and pay cash.
Doing anything else could delay your ability to file for bankruptcy after the holidays.
See also: Bankruptcy and Christmas.
Can I give holiday gifts while in a Chapter 13 bankruptcy?
Nobody’s going to scrutinize every last purchase you make while you are on a Chapter 13 plan. However, typically all of your disposable income is getting filtered into debt payments, which can make even finding a little money to pay for Christmas gifts very tricky indeed.
The Balance recommends saving $10 a paycheck or so throughout the year to spend on Christmas later. Another method may be to buy small, inexpensive Christmas gifts throughout the year. They also offer some advice on setting a Christmas budget.
But if you’re here at the end of the year without that kind of cushion, there may be other things you can do.
For example, while it’s natural to want to keep up appearances you might restrict your gift-giving to family members, or family members and close friends. Small gifts of food or handmade items may be workable with your existing budget.
You usually also have an approved recreation budget. Though it may be a modest amount, it can be used for Christmas gifts.
The one thing you can’t do is take out new debt, which is prohibited under your Chapter 13 plan.
Bankruptcy doesn’t have to bring your life to a screeching halt.
Not even at Christmas. With a little planning, strategy, and know-how you can still enjoy this season.