It’s official. The holiday season has begun. While you may be making your list and checking it twice, if you are planning to file for bankruptcy in the next few months, you could be putting yourself at a disadvantage after making holiday purchases. Read on to learn more about things to consider when filing for bankruptcy around the holiday season.
Should You Wait Until After Christmas to File for Bankruptcy?
Many people think that putting it off until after the first of the year is the best option. However, some of the reasons why people tend to wait until after Christmas to file actually won’t help them at all.
For example, many people mistakenly believe that if they wait until after the holidays, bankruptcy will get rid of all their holiday shopping debt. Others believe that filing right after Christmas will give them a fresh start in the New Year. Unfortunately, neither way will benefit the filer, and here’s why:
- Any debt incurred either three months before or three months after Christmas cannot be discharged according to bankruptcy law. The only exception are debts that can be considered “necessities.” Filers would still be responsible for paying any new debt.
- Bankruptcy is not an overnight process. It can take months to receive a bankruptcy discharge, so filing after Christmas will not actually mean you will be debt-free by January.
Thus, the best time to plan on filing for bankruptcy is in the spring, summer, or fall. That way, you can enjoy your holidays and hopefully receive a discharge before the beginning of the following year.
How Do Bankruptcy Laws Treat Luxury Items?
Whether during the holiday season or not, bankruptcy laws are strict when it comes to making luxury item purchases before claiming bankruptcy. Luxury items are defined as any goods or services that are not a reasonable necessity to support the debtor or the debtor’s dependents.
- If you are considering making any purchases of luxury goods or services that total more than $625 within 90 days of filing for bankruptcy, your creditor could very likely ask the court not to dismiss that debt.
While you may think taking out a cash advance is a workaround, think again. The same rules apply when taking out cash advances on your credit cards. Any cash advances that are more than $950 within 70 days prior to bankruptcy may also be disputed.
Can Your Holiday Bonus Impact The Means Test?
First, it’s critical to understand what the means test is and how it works. The means test is a tool used in bankruptcy to determine whether your income is low enough to file for Chapter 7 bankruptcy. The means test formula takes your current monthly income and deducts your current monthly expenses to determine your disposable income.
The more disposable income you have, the less likely Chapter 7 bankruptcy could be an option. You may be required to use your disposable income to pay off your outstanding debts. With that said, your holiday bonus adds to your disposable income, thus making your income appear to be higher.
Contact a Southern California Bankruptcy Attorney
Deciding to file for bankruptcy isn’t an easy one. It’s complicated, and navigating bankruptcy laws without experience can be frustrating. Having a skilled bankruptcy attorney in your corner can make all the difference in the outcome of your case.
The holiday season is stressful enough. Let us ease your concerns. Contact Wadhwani & Shanfeld today at (800) 996-9932 for a free consultation to learn more about how we can help you ease your financial burdens.