You’ve known that your financial situation has been a little shaky for a while. Like a lot of people do, however, you put the whole thing out of your head as much as possible so that you could enjoy the holiday season.
Now that the credit card bills have started to roll in, however, you realize that your finances are more out of control than you even realized. Is it time to file for bankruptcy?
Pre-holiday spending sprees can cause post-holiday bankruptcy problems
Generally speaking, you should stop using your credit cards or incurring new debts as soon as you think you may need to file for bankruptcy. If the realization that you’re in deep financial trouble hits just after the holidays, you may need to wait a bit before you file for bankruptcy. It may all depend on what you spent.
Typically, all unsecured debts, like credit cards and cash advances, are wiped clean once you receive a Chapter 7 bankruptcy discharge. However, there are some exceptions to that rule, and both cash advances taken within the last 70 days and the purchase of luxury items within the last 90 days before you file bankruptcy may not be discharged.
It’s important to remember that the bankruptcy trustee is there to ensure that everyone is treated as fairly as possible, including your creditors. Recent extravagant purchases may look like they were done with the full knowledge that you were going to file for bankruptcy (even if you weren’t).
However, it’s also important to note that the bankruptcy code doesn’t hold non-luxury items or services put on credit cards against you. For example, if you put new tires on your car in early December and had to put them on credit, that would probably not be considered a luxury item. Nor would ordinary grocery bills, gas for the car, utility payments or other essentials. (On the other hand, a pile of gifts for your family or tickets for a holiday trip back home would definitely count as luxuries.)
Ultimately, you want to learn as much as you can about how the bankruptcy rules apply to your unique situation. Protect your interests by finding out everything you can about your legal options.