How do Gifts and Loans Affect Bankruptcy?

money received after filing chapter 7

Bankruptcy is not an option to be taken lightly, but it is a reality for many Americans and business owners. If you find yourself on the precipice of bankruptcy or have already started the process of filing for bankruptcy, you may be curious about how gifts and loans affect your bankruptcy case. 

In a nutshell, when it comes to bankruptcy law, you will be required to account for any person or persons that you have gifted or loaned money to where the combined value is greater than $600. But this only applies to individuals that received gifts or monies 2 years prior to filing for bankruptcy. In this article, we will discuss gift-giving and how it pertains to Chapter 7 bankruptcy

How Do Gifts and Loans Affect Bankruptcy?

  • Modest Gift-Giving – You can give a friend or relative an expensive gift without the risk of negatively affecting your bankruptcy case. The bankruptcy system doesn’t care that you purchased your kids some toys or gifted your spouse a modest gift, as long as the amount isn’t excessive or exceeds $600 in the last two years. 
  • Larger Gifts, Loans, Donations – This is where it gets trickier. As stated above, you will be required by law to list all individuals who were gifted or loaned money that exceeds $600 within the 2 years prior to your bankruptcy filing. All information and persons will need to be disclosed on your Statement of Financial Affairs, Official Form 107. When it comes to donations, the same rule applies. You will have to list all charitable donations that exceed the $600 cap. Most charitable donations are safe from the trustee overseeing your bankruptcy case, but it is best to consult a Los Angeles bankruptcy attorney before making large charitable contributions. 
  • Cause for ConcernValuable gifts such as cars, expensive jewelry, valued artwork, will raise red flags with the bankruptcy fiduciary or trustee that is overseeing your case. To avoid prolonging your bankruptcy case, make sure you are open, honest, and detailed when filing for bankruptcy. 
  • Purchasing Gifts With Credit Cards – If you are filing for bankruptcy, you shouldn’t be using your credit cards. Maxing out your credit cards prior to filing for bankruptcy relief could result in bankruptcy fraud. Simply because you know that these debts will likely be discharged, if the trustee in charge of your bankruptcy proceedings sees that you intentionally made large purchases on a line of credit and then gifted it to your spouse or a family member, they too will be held accountable. The trustee is well within the law to sue the recipient of the gift to recover the value of the gift. 

In short, giving gifts prior to filing for bankruptcy is okay as long as it is humble and doesn’t exceed $600. Always disclose all gifts, donations, or loans to your bankruptcy attorney and the bankruptcy trustee to avoid delaying bankruptcy proceedings, discharge, or committing fraud. 

Contact Oak Tree Law

At OakTree Law, our Los Angeles bankruptcy attorneys will assess your unique financial situation and determine whether your gift-giving or charitable donations will affect your bankruptcy proceedings. We fully understand the complexities of student loan debt and the most current laws and regulations. Request a free evaluation online or call 888-348-2609 to get started.