Holiday Spending and Bankruptcy

It’s that time of the year! The holidays are upon us, which of course includes holiday shopping. It’s no secret that Americans like to shop, and we do the bulk of our shopping in the days leading up to Christmas. The National Retail Federation reports that we will each spend an average of $1,007.24 this year, a significant amount of money. Most of this will be on gifts for others, but let’s be honest - some of it will be spent on gifts for ourselves. And let’s not forget the money spent on gas, parking, and dining out while shopping. If you host parties, travel out of town for the holidays, or have college kids that need airfare, all of it adds up to a pretty hefty expense that can hit you like a pile of bricks in the very near future.

How Are We Paying for This?

Ideally, we’ve budgeted for our holiday expenses and are staying within that budget. Unfortunately, many of us don’t use a budget, or if we have a budget, we quickly leave it behind. The impulse to buy the perfect gift is hard to resist, especially when retailers are offering sales and discounts that are almost irresistible. It’s very easy to rack up more debt than you expect in a very short period of time.

Here are some common pitfalls for holiday shoppers:

• Putting it all on the credit card, without thinking about how you’re going to pay it back. If you are already carrying a balance on your credit card, chances are that you aren’t in a position to pay off the entire balance after your holiday shopping is finished. This means that you’ll have a higher monthly payment at a very high interest rate. Unless you expect additional income in the very near future that is specifically earmarked for credit card debt, you’ll wind up carrying this balance for quite some time and paying a lot of money in interest.
• Opening store credit cards in order to take advantage of certain offers. Retailers offer their own credit cards with very attractive offers - gift cards, additional discounts on the item you want to buy, and other rewards. Employees know that people are wary about opening new credit accounts, so they’ll tell you right away that you can pay it off at the end of the month and still receive all of the benefits. But again, how realistic is this? You’ll have lots of bills at the end of the month, and this could be a big one. It’s very likely that you’ll wind up making monthly payments on yet another credit card.
• Failing to budget or ignoring your budget. You’ve probably heard the saying, “failing to plan is planning to fail.” Similarly, failing to budget often leads to unmanageable debt. Without a budget, you’re much more likely to overspend.

Post-Holiday Financial Blues

Holiday shopping can be a lot of fun, and it’s an indispensable part of the holidays for many people. Buying gifts for friends and family can be very gratifying at the moment, but all of that spending can lead to serious financial problems.

Unless you’re paying in cash and staying within a budget, you’re probably going to be charging your purchases to your credit card. In the heat of the moment, it’s critical to remember that those bills are going to come rolling in after the fun is all over. These new bills will be in addition to the bills you already have, such as your rent or mortgage, your car payment, and your utilities.

If you’re already struggling financially, holiday spending may put you over the edge and leave you unable to keep up with your bills. As a result, you may find yourself in January with bills you can’t pay. Credit card debt is one of the leading causes of bankruptcy.

A Word of Caution if You’re Already Thinking about Bankruptcy

If you’re already thinking about filing for bankruptcy, you need to be very careful with your holiday spending. You may be tempted to think, “I’m going to need to file for bankruptcy soon, so I may as well buy it now.” Unfortunately, that sort of thinking can jeopardize your future bankruptcy.

First, understand that incurring debts in anticipation of filing for bankruptcy can be considered fraud. Your creditors will be entitled to review your financial records and can file an objection to your bankruptcy if they think that you should be obligated to pay the debt.

Second, gift purchases in excess of $675 can be considered “luxury goods” and therefore may be considered non-dischargeable in bankruptcy. As a result, you may wind up having to pay all of it back.

Contact a Minnesota Bankruptcy Attorney Today to Discuss Your Options

The experienced bankruptcy attorneys at Kain & Scott help people throughout the state of Minnesota get a fresh start. If you can’t keep up with your bills or are wondering how you’re going to get through the holidays, contact us today for a free consultation - give us a call at 800-551-3292 or send us an email.