People file for bankruptcy when their debt becomes too much to handle and they need financial relief. A common concern people have is how they should be spending their money and what debts they should be paying when they are contemplating filing for bankruptcy in the near future.
What to Spend Money on When Planning to File Bankruptcy
People thinking filing for bankruptcy do need to be careful about how they spend their money and on what debts they are repaying, as certain financial transactions that they undertake before filing their bankruptcy case can cause complications for them during their case.
It is perfectly acceptable for potential bankruptcy filers to spend money on necessities, such as groceries, and to continue to pay their bills, such as their mortgage, utility and car bills. However, it is not acceptable to spend money on “luxury” expenses that are not necessary for their support.
What Are Luxury Expenses?
Examples of luxury expenses would include buying a brand new 60 inch television or taking out a huge cash advance to go gambling at the casino. When a person incurs debt in order to purchase these types of luxury expenses shortly before filing bankruptcy they run the risk that those debts will not be discharged by the bankruptcy.
There is a presumption under the law that debts owed to any creditor, which are incurred within 90 days prior to filing for bankruptcy, totaling $725, or more, are not dischargeable when spent on luxury items or services.
When the debt is specifically a cash advance, totaling, at least $1000, and made within 70 days before filing bankruptcy, the debt is also presumed to be not dischargeable. It is advisable that a person considering filing for bankruptcy soon spends money, and incurs debts, only for things they need rather than for expensive things that they want.
When Not to Pay Off Old Debts
When it comes to choosing between spending money on bills and necessities, and making payments on unsecured debts, such as medical or credit card bills, a person should always choose to pay for the things they need, rather than make payments towards their old debts. It’s much more important to pay for groceries and make mortgage/car payments than to pay on old debts. Those old debts will be going away after receiving the bankruptcy discharge.
You may receive harassing phone calls from creditors but they can be ignored. Creditors have to go through the legal process of filing a lawsuit and getting a judgment entered against you before they can actually take any action to collect on the debts, such as wage garnishment and placing liens on your property.
The Bankruptcy Process
This process takes a while. On the date that a person files for bankruptcy, the automatic stay goes into effect, which completely protects you from any and all debt collection actions that may be taken by your creditors, including stopping phone calls, bills and letters demanding payment, and even any pending or potential lawsuits.
For these reasons, a person who decides that they will be filing for bankruptcy soon is simply wasting money by making payments on old unsecured debts that will ultimately be discharged in the bankruptcy.
CALL NOW FOR A FREE STRATEGY SESSION FROM A MN BANKRUPTCY LAWYER AT KAIN & SCOTT
This is generalized advice on how a person should manage their finances shortly before filing for bankruptcy. For more detailed information and advice you should consult an experienced bankruptcy attorney before filing for bankruptcy. Please see us at LifeBackLaw.com, formerly KainScott.com.
