Filing for chapter 7 bankruptcy can be a helpful tool when struggling to keep up with your finances. It can provide relief from debt collectors and allow you to clear some of your unsecured debts, such as credit cards and personal loans.
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After you file for bankruptcy, it is important to be mindful of your spending. Making large purchases or running up credit card debt can be considered bankruptcy fraud and jeopardize your case. Understanding what types of spending are allowed will help you successfully file for bankruptcy.
The Importance Of How Much Money You Have When You File For Bankruptcy
Bankruptcy can be a fresh start for people who are struggling with debt. Filing for chapter 7 bankruptcy allows you to eliminate certain types of debt, such as unsecured debt, credit cards, and medical debt. To eliminate this debt, you must provide the court with a complete picture of your finances and assets. This information is required on the day you file for bankruptcy. Any money or assets you acquire after filing may be used to pay off your debts.
What Will Happen To Your Assets?
It is important to understand what will happen to your assets. The court will seize your money and assets, but certain possessions are exempt from this. These include essential items like dishes, clothing, and some furniture. You may also be able to exempt some funds from certain bank accounts, but it is important to use these funds only for essentials. Talking to a bankruptcy attorney in your state can help you determine how to exempt any bank account funds.
Your creditors will be paid for selling your non-essential assets and any money in your bank accounts. It’s important to note that even though you may owe the bank money for things like loan payments or outstanding balances, they can’t take that money from your account without your permission.
Spending Money: How Does Affect Your Case
There are different guidelines for spending your money depending on the type of bankruptcy you are filing for. Chapter 7 and Chapter 13 bankruptcies have different rules, so make sure you understand the difference before spending.
More suspicion surrounds your spending habits in the months following filing for chapter 7 bankruptcy, as this process can eliminate unsecured debts. This is especially true if you were already planning to file for bankruptcy.
In contrast, chapter 13 bankruptcy reorganizes your debt and puts you on a repayment plan but doesn’t clear your debt completely. Each individual has a different spending limit according to their court order.
Here are the pending guidelines to pay attention to when filing for chapter 7 bankruptcy.
Could Be Not A Good Signal
Before filing for bankruptcy, spending money on items that seem frivolous or luxurious is not a good idea. The court could see your case as fraud and overspending.
Stocking up on groceries or household items like toilet paper or cleaning supplies before you file for bankruptcy may make sense in some cases. However, avoid making any unnecessary large purchases. Keep all your receipts to show what you purchased and why you thought the purchase was necessary.
Property Transfers
It’s important, to be honest about property transfers before filing for bankruptcy. Failing to disclose this information could be seen as hiding assets, which could lead to charges of bankruptcy fraud. This could result in being unable to discharge debt and the bankruptcy trustee attempting to recover the transferred property.
Transfers To Family Or Friends
Paying off a balance owed to a friend, loved one, or creditor could result in the money being taken back. This is because once the amount reaches a certain threshold, the trustee overseeing the case can take the money back from whoever you paid it to. More often than not, this is a waste of your money.
Large Purchases Could Be Sold Off
A key part of filing for chapter 7 bankruptcy is that a trustee appointed by the court will have the authority to sell your nonexempt assets to help repay your creditors. Therefore, making large purchases before bankruptcy could result in those items being sold off by the court to repay your creditors.
Bankruptcy can be a stressful and overwhelming process. Attending court and answering questions about your finances under oath can be daunting. Thinking about how comfortable you’ll be explaining your decisions to a judge is important before making any major financial decisions.
Credit Card Debt Could Be Suspicious
Filing for chapter 7 bankruptcy with a lot of credit card debt is not a good idea. It can look suspicious, like you never intended to pay off your cards. The credit card company could argue that the charges shouldn’t be cleared. This would mean you would have to pay for the charges yourself.
Final Thoughts
Many options are available when you are struggling financially, and filing for bankruptcy may be one of them. However, before making any decisions, it is important to speak with a bankruptcy attorney to learn more about this option. In the meantime, focus on essential expenses like housing, utilities, and food.
Don’t rush into filing for Chapter 7 bankruptcy – take the time to explore all your options. A debt consolidation loan, for example, can roll your unsecured debts into a single loan with a lower interest rate. This could save you money as you pay off your debt, and the repayment term might be a better fit for your situation.