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Unnecessary spending and Chapter 7

On Behalf of | Aug 25, 2022 | Chapter 7 Bankruptcy

Anyone considering filing for Chapter 7 bankruptcy is likely dealing with a challenging debt situation. When assets and income cannot come close to paying various obligations, a California debtor may take the means test to see if Chapter 7 is viable. Anyone eligible for Chapter 7 bankruptcy may benefit from avoiding unnecessary spending that could complicate the situation.

Chapter 7 bankruptcy and spending discipline

The court would likely take a dim view of certain spending practices that occur in the days or weeks leading up to filing for Chapter 7. Someone who runs up an additional $1,000 in charges three days before filing may draw the court’s attention. If the court discovers the charges involved unnecessary retail purchases, the judge may assume such actions occurred with the hope the debt faces discharge.

Any charges made 90 days after filing for bankruptcy could also garner scrutiny. The court might suspect fraud when someone engages in such behavior.

Others may attempt to move assets and property to someone else, an action that might appear fraudulent. A parent who moves $10,000 out of a money market to an adult child’s account might do so with an agreement to retain access to the funds. Such behavior could result in claims of bankruptcy fraud.

Following the law

Persons seeking protection under Chapter 7 bankruptcy rules might wish to avoid committing illegal actions. Bankruptcy fraud is a felony that could result in a five-year prison sentence and up to $250,000 in fines.

Those who submit all necessary evidence to support their debt situation and do not attempt to fool the court might find the bankruptcy process works for them. Successfully completing all requirements under Chapter 7 rules may lead to a fresh financial start.