Surviving the Holidays After a Chapter 13 Bankruptcy

Daughter unwrapping gift with mom in restaurant
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Filing for bankruptcy doesn’t have to devastate your holiday celebrations. As you plan for the season, be aware of certain rules, and prioritize spending time with family over spending money. In this way, you can abide by Chapter 13 guidelines and still make the most of the holiday. 

What Is Chapter 13 Bankruptcy?

Chapter 13 is often referred to as a “wage earner’s bankruptcy” because it requires that you still have some regular and reliable income. You must enter into a three- to five-year plan to pay off at least a portion of your debts under the supervision and with the approval of the U.S. Bankruptcy Court. Your creditors can’t take any collection actions against you while you’re paying on the plan.

Your total unsecured debts must be less than $419,275 as of 2021 to qualify for a Chapter 13 plan. Your secured debts must be less than $1,257,850.

You must begin making payments on your plan within 30 days of filing your bankruptcy petition, even if it hasn’t officially been approved by the court yet.

If you haven’t yet filed and are considering purchasing holiday gifts on credit, don’t. If you accumulate debt with no intention of repaying it, it’s considered fraud and bankruptcy trustees are alert to it. It’s also punishable by a fine of up to $250,000 and up to five years in prison, or both.

How Does a Chapter 13 Bankruptcy Affect Your Spending?

You generally can’t take on more debt while you’re involved in this type of bankruptcy payment plan (unless it’s deemed absolutely necessary and you acquire prior approval).

And any newly-incurred debt would not be discharged if you went ahead without court approval. This includes new charges made on existing credit cards. The trustee or your creditors could also file an objection with the court if they were to find out about it.

This means you can’t purchase anything on credit—you must pay cash for all gifts.

It’s also essential that you follow the budget you filed so you can continue to make timely debt payments. A Chapter 13 budget requires discipline, especially during the holidays. 

How Much Should You Spend During the Holidays? 

With your official (or soon to be official) Chapter 13 budget in hand, figure out how much you can spend for the holidays. Remember, this year is different. Next year will be different. And until you’ve satisfied your plan, you’ll need to make sure you abide by it. Especially during the holidays.

Fortunately, there are a number of allowable expenses you probably included in your Chapter 13 budget. For example, a household of four can budget $1,740 for food, clothing, and other items. This is one area you might find some wiggle room to afford gifts for your family and a few select others. 

The court expects a family of four to budget $947 of that amount toward food, with the rest divvied up between housekeeping supplies, clothing, personal care, and miscellaneous. Holiday expenses certainly fall within the realm of miscellaneous and could be covered by clothing and personal care products for your family (if they fall into those categories).

Use your own budget to guide how much you can spend on gift-giving. And look for creative ways to satisfy both the budget and holiday festivities. 

Tips for Surviving the Holidays After Declaring Bankruptcy

Only gift to your inner circle this year. There are a few other considerations as well.

The $600 Rule 

The bankruptcy court doesn’t want to see you spending more than $600 on any one gift, even if it’s for your beloved. Consider consulting with your attorney before you spend on anything significant—it might have to be reported to the bankruptcy trustee assigned to your case. 

Needs vs. Frivolous Gifts

The nature of what you’re giving can be a consideration, too. You’re typically safe with items like clothing and necessities.

Spread the Wealth

Consider setting up a “Secret Santa” event for your immediate family members where you draw names out of a hat—everyone can give one gift to one person so you’re not looking at buying numerous items for several people. 

Emphasize Experiences Over Gifts 

Give the gift of your time or skills. What are you good at? What do you enjoy doing? Get creative. Below are a few ideas.

  • Prepare a recipe book with your friend or spouse’s favorite meals and offer to be the chef. 
  • Create an original piece of art if that’s where your talents lie. 
  • Offer a free ride once or twice a month for a friend who doesn’t drive. 
  • Gardening or house cleaning work could help a parent or elderly neighbor in need. 

These types of gifts are often appreciated much more than something delivered in a box. While Chapter 13 bankruptcy can cause financial stress on your family, it will also help you get back on track with your money. With some creative ideas, the holiday season can still be festive with friends and family.