Yes, you can buy things before you file for bankruptcy. You shouldn’t be buying things on credit cards, but you are absolutely in charge of how you spend your own money, even if you’re about to file for bankruptcy protection.
Your regular paycheck should be used to pay your regular monthly living expenses, including utility bills, food, cleaning supplies, gas for the car, etc.
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 is not protected by an exemption, you’re not really doing yourself any favors, as the bankruptcy trustee assigned to your case will sell it for the benefit of your creditors.
- Necessities doesn’t just mean food and supplies: Necessities can include things like new linens, back to school clothing, even a car if you know you’ll be returning yours to the bank as part of your Chapter 7. Again, it’s key to stay within the allowed exemptions. This means don’t buy a $7,000 car if you can only protect a $5,000 with available exemptions. Buy a $5,000 car and spend the other $2,000 on other items you need.
- Keep receipts! Especially if you’re spending down money from savings or a tax refund shortly before filing your case, make sure to hang on to all of your receipts. One of the things the bankruptcy trustee will want to verify is that you didn’t just withdraw the money and put it under the mattress or in the freezer. If possible, use your debit card, so your bank statements show a history of the transaction, but definitely also hang on to the receipt. After all, the bank statement will only show your trustee that you spent $1,200 at Costco - it won’t show them that you purchased food and household supplies and not a luxury watch.
- List the newly purchased items in your bankruptcy forms! Otherwise, you won’t be able to claim an exemption and protect them from your trustee.