The holidays are here once again. And although this is a season of joy, it’s also a time of overwhelming financial stress. If you’re struggling with crippling debt this holiday season, filing for bankruptcy may be your best option for getting your finances back on track.
Fortunately, filing for bankruptcy offers debt relief to help you get your finances back in order, but you’ll need to avoid certain pitfalls when filing, such as overspending or accumulating more debt.
Here’s what you need to know about getting through the holidays during bankruptcy.
Don’t Accumulate Any More Debt
If you’re already in the middle of filing for bankruptcy, any new debt that you accumulate will not be discharged. This includes credit card debt, so try to avoid racking up a substantial balance this season.
Those who are about to file for bankruptcy should also avoid accumulating substantial debt. Many debtors make the mistake of racking up more debt before filing because they figure that they’ll be able to discharge it. This is even more common during the holiday season because people spend a great deal on travel plans, gifts, and food.
When you have a sudden increase in debt leading up to filing for bankruptcy, credit card companies may object to your bankruptcy discharge. They may even argue that you committed bankruptcy fraud, which is a federal felony. Those found guilty of bankruptcy fraud could face up to a five-year prison sentence and up to a $250,000 fine.
Don’t Purchase Expensive Luxury Items
Although some holiday expenses are unavoidable, you should definitely avoid spending over $600 on a single luxury purchase. An item may be considered a “luxury” if it’s a product or service that’s not necessary to support you or your dependents. If you’re not sure whether some of your purchases are considered “luxury,” consult with a Chapter 7 or Chapter 13 bankruptcy attorney.
If you make a luxury purchase of over $600 within 90 days of filing for bankruptcy, creditors will request for the bankruptcy court to not discharge the debt. This also includes gifts, so it’s critical not to spend over $600 on any one gift.
Some debtors attempt to avoid the luxury item bankruptcy provision by taking a cash advance on their credit card, but this will also likely not work. If you take a cash advance of over $950 within 70 days of filing for bankruptcy, the credit card company will argue against your debt being discharged.
How to Cut Down on Spending This Holiday Season
It’s best to avoid accumulating more debt during the holidays, and you can do this by creating a tight budget and by staying clear of any holiday sales that may increase your spending.
When creating your budget, calculate how much you can reasonably spend without falling into further debt. Then, create a list of necessary holiday expenses. It’s critically important to avoid going over budget this holiday season as you prepare to file for bankruptcy or continue going through the filing process.
You can also find creative ways to reduce your spending, such as introducing a Secret Santa gift exchange in your family. That way, you’re not having to purchase a gift for every member of your family.
Additionally, if you’re hosting extended family or friends for the holidays, you can introduce a potluck system so that you don’t need to spend as much on food.
Bankruptcy Automatic Stay
Although you need to tighten your belt and avoid more debt this holiday season, filing for bankruptcy does provide certain protections and benefits that may alleviate some of your financial stress, such as an automatic stay.
When filing for Chapter 13 bankruptcy, your home’s mortgage payments will be restructured into your repayment plan, and creditors will not be able to repossess your home or take legal action against you thanks to the bankruptcy automatic stay.
With Chapter 7 bankruptcy, you reaffirm your secured debts while discharging unsecured debts. Secured debts refer to debts with collateral, such as a home or car. Most of the time, Chapter 7 filers are able to reaffirm their mortgages as long as they are not behind on payments.
If you are behind on a house or car payment, you may want to consider filing for Chapter 13 bankruptcy.
Contact an Indiana Bankruptcy Attorney
If you need help getting started with filing bankruptcy this holiday season, consider enlisting the services of Chapter 13 or Chapter 7 bankruptcy lawyers. Qualified bankruptcy attorneys can help you improve your financial situation and can assist you if you’re the victim of creditor harassment.
For seasoned bankruptcy attorneys in Indiana, contact Sawin & Shea, LLC. We have years of experience helping Indiana residents become debt free. Call us today at 317-759-1483, or you can schedule a FREE consultation online here.