Christmas is almost upon us, and if you are like most people, that means that you are probably spending more money than you normally do. The holiday season is a great time of year, and we encourage people to enjoy it, but there are some practical considerations that any responsible person should make. Even if you are financially stable, it is wise to consider the impact of your spending and to think of the long-term picture in regard to any credit that you may be taking out. Moreover, if you think that there is the potential for bankruptcy in the near future, your Christmas finances need to be carefully considered.
The 90-day rule
As the holidays approach, most people do not have the cash on hand to cover all of the expenses that come with this time of year, and this is going to be especially true for those who may be nearing bankruptcy. With that being true, you might think that it is a good idea to cover your Christmas expenses by putting the cost on your credit card. If this is what you are thinking, then you may want to think twice.
If you use your credit card to purchase luxury goods or for nonessential spending within 90-days of filing for bankruptcy, the credit card company can file for those debts to be exempted from the proceedings. This is to prevent people from taking advantage of the system. Some people get the idea that since they may be filing for bankruptcy soon, they might as well max out their credit card and make the most of things by paying for an expensive trip or charging something that they have always wanted. While you may want to have a big Christmas on your credit card before you file for bankruptcy, it could be a serious mistake.
Christmas bonuses and the means test
The means test for a Chapter 7 bankruptcy may not be a perfect system, but it is intended to ensure that only those who truly need it have access to the debt removal that it provides. In essence, what the means test does is it weighs your income against your expenses, and it determines whether you qualify for this type of bankruptcy.
The means test is based on your last six months of income, and this can make a Christmas bonus a fairly significant element in your potential to have access to a Chapter 7. If you received a substantial bonus for Christmas and you file within six months of receiving the bonus, it could give the means test an inflated picture of your income. The means test will assume that you make this money every six months and it could disqualify the individual from filing for a Chapter 7.
Receiving Christmas cash or assets as gifts
As harsh as it may sound, the gifts that you receive could come back to haunt you when it is time to file for bankruptcy. If somebody gives you cash for Christmas, this could be counted on the means test, and it could push you over the threshold to where you are no longer eligible for a Chapter 7. Along with affecting your means test, cash and assets that you receive as gifts will also be taken into account when it comes to the assessment of your assets, and you may lose them during the proceedings. As much as you might want to receive the gifts or accept help from well-meaning friends and family members, it may actually work out better if you turned these kinds of gifts away.
The holidays can be a bit stressful even when you don’t have a looming problem like a bankruptcy, but a situation like that is sure to compound things. If you think that bankruptcy is on the horizon, then it might be advisable to try to file before the holiday season begins. Otherwise, you may want to see if you can put things off until later in the year so as to mitigate the effects of factors like Christmas spending and bonuses or gifts.