If you’re feeling overburdened by the weight of personal debts you can’t afford to pay, filing for Chapter 7 bankruptcy can wipe out many of your debts and give you a fresh financial start. But making spending mistakes immediately before you file or even after you file could get you in trouble.


If you’re seriously contemplating filing for Chapter 7 bankruptcy in the near future, it’s important to understand how you should manage your finances in the interim. Smart spending will help you avoid paying down the wrong debts, incurring more non-dischargeable debt, or worse, jeopardizing your case.


How should and shouldn’t you spend your money leading up to a Chapter 7 bankruptcy case? Read on to learn a few valuable tips.


What Should You Continue Spending Money On?

As you prepare to file for bankruptcy, it’s perfectly acceptable to continue spending money on everyday necessities that you’d normally pay for. Examples include:


●        Utility bills

●        Vehicle loan payments

●        Mortgage payments

●        Insurance premiums

●        Vehicle repairs

●        Groceries

●        Child support or alimony payments

●        Student loan payments

●        Other essential expenses


What Shouldn’t You Spend Money On?

Generally, you’ll want to avoid spending money on any luxuries you don’t really need to support yourself or your family. Don’t buy a brand-new flat-screen or pay for a vacation — nothing non-essential. Aside from avoiding non-essential purchases, other spending mistakes you’ll absolutely want to avoid include:


●        Paying down debts that your bankruptcy case will eventually discharge. If you’re really struggling to make ends meet, continuing to make payments on dischargeable debts (like credit card and medical debts) may not be in your best interest leading up to a Chapter 7 case. If you file successfully, your bankruptcy will end up wiping out those debts anyway.


●        Selectively paying down loans. If you preferentially pay down debts within 90 days of filing, those payments can be “undone” by your bankruptcy case. Before you pay back any of your creditors or even personal loans given to you by friends or family members, consult with a bankruptcy attorney to avoid making a mistake.


●        Incurring new debt. Avoid running up any kind of debt before you file or you may be responsible for paying those debts in full.


●        Spending money from retirement accounts. Pulling money from retirement accounts, either to stash it away or pay down debt, is a terrible idea. Most retirement accounts are exempt when you file for bankruptcy, which means your creditors can’t touch that money. You shouldn’t touch it either.


It’s important to note the above list is not comprehensive and every bankruptcy case is unique. Furthermore, frivolous spending even after you file can also create problems. If you spend large sums of money during the 90-day period after you file, the court may view that as acting in bad faith or committing potential fraud. Ultimately, your case could be dismissed rather than discharged, which is the opposite of what you want.   


For the best advice on how to manage your pre-filing finances while you prepare for your case, consult with a Minnesota bankruptcy lawyer.


Request a Free Consultation from a Minnesota Bankruptcy Attorney Today

If you’re considering filing for Chapter 7 or Chapter 13 bankruptcy, it’s in your best interest to have a knowledgeable attorney on your side. That’s where we come in. For over 20 years, the law office of Ron Lundquist has served clients throughout the Minneapolis/St. Paul metro, and when you need help filing for personal bankruptcy, we’re here for you too.


To get started, give us a call today at (651) 454-0007 or request a free consultation online, and we’ll be in touch with you promptly.