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Is it bad to spend money and then file for bankruptcy?

Everyone who is considering Chapter 7 bankruptcy is in a tough spot financially, and they don't have a lot of cash on hand. They still need to spend, but they don't want the courts to then accuse them of bankruptcy fraud, saying they were using credit cards just so they could then eliminate the debt without paying it back. What should you do?

Typically, there's nothing to worry about if your spending is normal. If you spend $300 on groceries every month and you continue to spend $300 while filing, that's not going to be a problem.

The issue generally comes from the types of things you buy and how much you spend. When you break that normal pattern and it appears that you're just trying to waste the money, it's an issue.

For example, if you rarely upgrade the appliances in your house and then you spend the month before you file buying a new TV, a new washer and dryer and a new computer, then it may look like fraud. The same is true if you never go on vacation, but you take a two-week trip overseas and then file on the day you get back.

So, spending itself is not the problem. The court understands that there are things you need to buy and you don't always have cash to make those purchases. Spending with the appearance of fraud, though, can get you into a world of trouble.

As you can see, it's important to understand your legal rights and obligations even before you have filed for Chapter 7.

Source: Bankrate, "Don't spend money before bankruptcy," Justin Harelik, accessed May 26, 2017

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