Yes, you can buy things before you file for bankruptcy. You shouldn’t be racking up credit card debt or buying luxury items. But you’ll need to pay your monthly living expenses, like your utility bills, groceries, your rent or mortgage, and gas. You’re absolutely in charge of how you spend your own money, even if you’re about to file for bankruptcy protection.
If you have a large sum of money you need to spend before filing your case — maybe due to a tax refund — you’ll want to follow a few best practices to make sure your case goes smoothly:
- Only buy necessities: If you purchase something that isn’t protected by an exemption, you’ll probably end up losing it in bankruptcy. That’s because the bankruptcy trustee assigned to your case can sell non-exempt property and use the proceeds to pay off your creditors. Necessities are typically covered by exemptions.
- Necessities don’t just mean food and supplies: Necessities can include things like new linens, back-to-school clothing, and even a car if you know you’ll be returning yours to the bank as part of your Chapter 7 case. Again, it’s key to stay within the allowed exemptions for your state. This means don’t buy a $7,000 car if you can only protect $5,000 with available exemptions. Instead, buy a $5,000 car and spend the other $2,000 on other items you need.
- Keep receipts! Especially if you’re spending money from savings or a tax refund shortly before filing your case, make sure to hang on to all of the receipts for your purchases. The bankruptcy trustee will want to verify that you didn’t just withdraw money and put it under your mattress. If possible, use your debit card so your bank statements will show a history of the transaction. But keep the receipts, too! After all, the bank statement will only show that you spent $1,200 at Costco — it won’t show that you purchased food and household supplies and not a luxury watch.
- List the newly purchased items on your bankruptcy forms! Otherwise, you won’t be able to claim an exemption and protect them from your trustee.