If you’ve decided that 2025 will be the year you finally take the step of filing Chapter 13 bankruptcy to get your debt under control, that can feel like the beginning of a huge weight being lifted off you. Before then, you’ve got to get through the holidays and all the spending that entails for most people.
Even though you haven’t yet begun the bankruptcy process, you need to treat the holiday season as though you have. It’s not a time to run up what’s left of your available limit on your credit cards.
Why you don’t want to accumulate unnecessary debt over the holidays
For one thing, unlike Chapter 7 bankruptcy, where people’s assets (including property) are used to help pay their debts, in Chapter 13, debt is reorganized and repaid over either three or five years. That means you’re just going to be responsible for any debt you incur prior to your filing.
More importantly, bankruptcy courts look back at people’s spending in the months prior to filing, and they can see when someone has chosen to have one final blowout. That can be considered bankruptcy fraud. The consequences can involve up to five years of incarceration and/or $250,000 in fines.
Answering the question in the Statement of Financial Affairs you’ll submit about gifts you’ve given in the past two years “with a total value of more than $600 per person” untruthfully can also come with serious consequences. Any kind of fraud is grounds for denying someone the right to file for bankruptcy.
Does that mean no Christmas presents?
You can still give gifts, but you’ll need to be creative. For your family, stick to things they need, like clothes, shoes, backpacks and other essentials. If you can cook or bake, give gifts of edible items. Give hand-made gifts or even re-gift items you’ve never opened or used.
If you have a large extended family or friend group, suggest doing a White Elephant or Secret Santa gift exchange to cut down on the number of gift purchases for everyone. You don’t have to tell people about your bankruptcy, but you can just say that money is tight right now. Anyone should be able to understand that.
If you have legal guidance in the lead-up to filing for bankruptcy, you can get answers to any questions and concerns you have. You can also avoid unnecessary and costly missteps that could derail your bankruptcy.