Completing Chapter 7 bankruptcy allows you to eliminate many unsecured debts, such as your credit card balances and personal loans. The goal of this process is to help you regain your financial footing. However, bankruptcy courts will be on watch for any efforts to abuse the system.
Certain types of purchases or money transfers could jeopardize your bankruptcy case. With sound spending practices, you might avoid the premature end of your bankruptcy.
Refrain from large purchases
Any big-ticket purchases, including vehicles, furniture or electronics made shortly before your bankruptcy filing date, may come off as an attempt to deplete funds that should go towards your debt repayment. Even if your bankruptcy stays on track, your bankruptcy trustee could seize your new purchases and sell them to repay creditors.
This does not mean you cannot spend any new money at all before your bankruptcy, but spending on items deemed frivolous or luxurious will make you look unserious about controlling your financial habits. You should be on safer ground by only spending on basic necessities, including groceries, household essentials and transportation needs.
Transferring assets opens a legal minefield
Attempting to pass or convey property to other parties or businesses has the potential to backfire on you. You might appear to be trying to protect assets from liquidation, which is unlikely to work since your bankruptcy trustee can recover improperly transferred assets to repay creditors.
Similarly, even if you want to repay debts you owe to family or friends, your trustee could reclaim the money and take it for creditor payments. As much as you may want to pay off obligations to loved ones, waiting until after bankruptcy may be more effective.
Chapter 7 is not the best solution for everyone, but it can be effective for those who have no other choice to resolve their debts. This is why you should avoid the kind of spending that raises doubts about your intentions to use bankruptcy to restore your financial health.
