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Can I Give Gifts Before Filing for Bankruptcy?

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Filing for bankruptcy provides a way for honest debtors to gain freedom from overwhelming debts. However, the bankruptcy court will consider your overall financial picture, including any gifts you may have made to others. Our Indiana bankruptcy lawyers explain basic guidelines when it comes to gift giving and how it could impact your bankruptcy case. 

Bankruptcy Rules When It Comes to Gift Giving

Credit card companies, banks, and other types of lenders often overextend credit to clients. They know they can make money by charging high-interest rates. If you fall behind on payments, they tack on heavy penalty fees and either repossess the items purchased or take you to court. Bankruptcy helps level the playing field. 

When an honest debtor gets overwhelmed with debts, filing for bankruptcy provides a solution. It completely eliminates certain types of debts while restructuring others, reducing the overall amount owed and making payments more reasonable. However, there are some rules that apply. 

Under the United States Code (11 U.S.C. § 548), fraudulent transfers are prohibited and could impact your right to file bankruptcy. This means you can not give away large amounts of property and assets prior to filing a bankruptcy petition. Gifts are generally allowed, provided they are reasonable and do not represent significant amounts of money. Common types of gifts permitted include: 

  • Toys and other items purchased for children;
  • Birthday gifts for family members and friends;
  • Gifts given for Christmas and other holidays;
  • Gifts made to charities and non-profit organizations. 

The Types of Gifts That Could Create Problems With Your Bankruptcy Petition   

Bankruptcy is designed to help honest people get out from under overwhelming debts. It puts an immediate stop to all debt collection calls and legal actions while your case is being resolved. However, there are always people who try to abuse the system. 

When filing for bankruptcy through the Indiana Bankruptcy Court, a court-appointed trustee will carefully review your petition, looking for any signs of fraud. Generally, as long as individual gifts made over the prior two-year period do not equal more than $600, it should not raise any red flags. Gifts that could create problems include the following: 

  • Gifts of cars, furniture, or other types of property for which you are still making payments;
  • Gifts purchased on credit cards that appear extravagant, such as buying your spouse an entirely new wardrobe or a collection of jewelry;
  • Gifts of personal assets to friends or family for the purpose of avoiding having to list them on your bankruptcy petition;
  • Large donations or loans.   

Discuss Your Case With Our Indiana Bankruptcy Lawyer

When it comes to gift-giving prior to filing for bankruptcy, it is important to use caution. To discuss your case and how the rules apply in your specific situation, reach out to Whitten & Whitten. Call or contact us online and request a free consultation with our Indiana bankruptcy lawyer today.

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