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Spending money in Chapter 7

On Behalf of | Nov 28, 2022 | Chapter 7 Bankruptcy

Chapter 7 bankruptcy offers a possible solution to those struggling with excessive debts. A Michigan debtor could find a path to a fresh start after successfully passing the required means test and filing for Chapter 7. A mistake the filer could make might involve spending sums of money before or after entering Chapter 7. Such behaviors might raise eyebrows, leading some to wonder about fraud.

Spending concerns with Chapter 7 filers

The bankruptcy courts examine a filer’s financial records when the debtor seeks protection. Bankruptcy protections exist for those who are legitimately insolvent. Persons with assets that can cover their debts may have to find another way to deal with creditors.

If someone were to run up their credit card accounts with thousands of dollars of unnecessary purchases and clear out a bank account of its funds, expect the court to be suspicious. Such behavior looks like someone got rid of their assets to get a better deal in bankruptcy. Actions like that could be deemed fraudulent.

Similarly, the court may wonder where someone acquired money they are spending after exiting bankruptcy. If the filer hid money and lied to the bankruptcy court, the person could face criminal charges.

Documenting spending

Large purchases may not necessarily indicate attempts to deceive the court when filing for Chapter 7 bankruptcy in Michigan. Someone may purchase a used car anticipating the bankruptcy court might mandate the sale of a debtor’s more expensive vehicles. Others might hire a contractor to perform needed repairs in a home. Such purchases could be essential ones that the court understands.

The court might request documentation to show whether the purchases were necessary. Keeping accurate records before and after bankruptcy could be helpful.