It’s normal to have a lot of questions about the process and impact of bankruptcy. Even though there are hundreds of thousands of Americans who file for bankruptcy every year, it is still a pretty mystifying experience for most people. That’s one of the reasons why you should always have someone on your side during the bankruptcy process; it’s so important that you have someone available to answer your questions and guide you through the bankruptcy experience.
If you are contemplating bankruptcy proceedings, you likely want to know how it will affect your income, current credit score, assets, savings, retirement, employment, and much more.
One question that may deter people from pursuing bankruptcy is this: does this mean that my spending is going to be monitored?
The Short Answer: In General, Your Spending Will Generally NOT Be Monitored After Discharge
Here is a piece of good news: you are not going to have your spending monitored forever just because you chose bankruptcy.
Too many people avoid filing for bankruptcy because they are anxious about having their spending habits micro-managed. Unfortunately, it is a common myth that the court is going to monitor your spending habits once you file. This is unfortunate because there are people who could really benefit from bankruptcy and avoid it because they are worried about someone second-guessing all of their spending decisions.
That said, the trustee does have access to information about your spending. So what does that mean for you? What is a trustee looking for when they review your spending?
What Spending Can Be Reviewed?
The two parties who will definitely look over your spending records, including your bank and credit statements are your attorney and the court-appointed trustee.
These individuals have the authority to look for proof of fraud or misconduct in your spending history. However, they are not interested in minor details like how much you spent on lunch or whether or not you bought a bottle of wine with your groceries.
If it’s not evidence of something illegal, excessive–or something that would disqualify you from filing for bankruptcy–then your spending habits really aren’t of much interest to them. However, spending on luxury goods or services, leisure travel/vacations, or excessive cash withdrawals a short time before filing can lead to scrutiny of your bankruptcy case. In some cases, the Court could deny your discharge in bankruptcy due to bad faith if a determination is made that your spending caused harm to your creditors.
The other thing that they are looking for is any funds that could be used to repay your creditors. A big mistake is trying to hide funds from your attorney or trustee, because these funds will be discovered, and the act of hiding can jeopardize your bankruptcy proceedings.
How Far Back Can They Look?
There is a “lookback period” that determines how far back your attorney, and the trustee can look at your records. The point of looking back is to figure out if there have been any suspicious funds transfers or luxury purchases.
In general, the look-back period is 90 days. For paying friends and family money that you owe them, the lookback period is one year. Basically, the court wants to ensure that you didn’t spend a whole bunch of money right before filing for bankruptcy on things that are not reasonably necessary.
They also want to ensure that you are not trying to pay back loans to a friend or family member while clearing debts to other creditors through bankruptcy.
Bankruptcy Means Addressing Debt, Not Monitoring Your Spending
The ins and outs of bankruptcy are complicated and time-consuming. Spending time micromanaging or judging your spending habits simply isn’t a good use of time for a bankruptcy professional.
If you are hesitating to file for bankruptcy because you’re worried that someone might judge your habits, it may be helpful to remember that bankruptcy professionals deal with people in all kinds of situations. Bankruptcy can be the result of poor spending habits, but it can also be caused by medical debt and unexpected life circumstances.
Get Compassionate Help from Sawin & Shea
Having a compassionate and respectful attorney at your side through your bankruptcy process is so important. We know that hiring a bankruptcy attorney is an intimidating and sometimes scary prospect. But we are committed to providing non-judgmental representation to all of our clients.
We are not here to monitor or judge your spending. We just want to help you get out of debt and back on your feet!
Still Have Questions?
If you still have questions about filing for bankruptcy and what your attorney and the court-appointed trustee might look for in your spending history, please don’t hesitate to reach out to our team here at Sawin & Shea. We offer a free video consultation, which may be the first step to clearing your debts and starting fresh.
Sawin & Shea — Indianapolis Bankruptcy Attorneys
Filing for bankruptcy is not the end. It’s the beginning of a new financial life for you. The Indiana bankruptcy attorneys at Sawin & Shea can help you get rid of overwhelming debt and advise you on life after bankruptcy. We are here for you during this life-changing process.
Please do not hesitate to call us today at (317) 759-1483 or send an email for a free consultation. We are ready to help.