Bankruptcy and Spending
Bankruptcy can offer many advantages, but it can also mean exposing your financial life to the world. Information that would otherwise be private becomes the business of the trustee and the court. Not only does this mean other people will know about your debt, but it also means they’ll be legally entitled to have an opinion concerning your spending habits and your financial choices.
But does this mean your spending will be monitored if you file for bankruptcy?
Luckily, this isn’t the case. Or at least it isn’t as bad as some people imagine when they are considering bankruptcy.
One of the most common myths related to bankruptcy is that the court will monitor your spending habits once you file. Too many people avoid filing for this reason when it’s not even true. They choose not to do something that could benefit them financially because they are concerned the trustee will analyze their spending habits and set limits on how much money they spend.
It’s true, bankruptcy forces you to give up some control financially. The bankruptcy trustee does have the authority to review bank statements and other records to look for proof of fraud or misconduct. But he or she doesn’t care whether you snuck through the drive-thru one too many times this week or that you’re buying a pack of cigarettes or paying for weekly manicures.
The only thing the trustee wants to know is whether or not you’ve done something that could preclude you from qualifying for bankruptcy or if you did anything intending to hide money from the court.
Bankruptcy Means Test
The court will review your overall financial situation to determine if you qualify to file for Chapter 7 or Chapter 13. You and your attorney will do the same before you file. This includes filling out a means test.
The bankruptcy means test looks at your income and your expenses. However, only certain expenses can be included in the means test.
For instance, the cost of your mortgage, car payment, and groceries would be included as expenses and would show that you need at least that amount of money each month to make ends meet. However, the cost of those cigarettes or manicures mentioned earlier might not be included based on how much you are spending.
This doesn’t mean you can’t spend money on these things. It just means the court won’t allow you to put them into your bankruptcy budget.
What the court does allow is the cost of miscellaneous expenses. If there are certain things you spend money on but they cannot be included in your bankruptcy budget individually, you might be able to include them in the miscellaneous expenses. This gives you a great deal of leeway when it comes to how you manage your money once you’ve filed for bankruptcy.
To learn more about the bankruptcy means test, check out this information from NOLO.com.
Bankruptcy is about Debts and Assets, Not Monitoring Your Day-to-Day Spending Habits
The important thing to realize is that the goal of the trustee and the bankruptcy court isn’t to put you on a strict budget that leaves no room for fun or indulgence. It might be a good idea on your own to cut back, but the court is only concerned about your debts and paying back your creditors as much as possible out of the money and assets you have. What you do with the money that is exempted is up to you.
If you have concerns about how much control you’d need to give up if you file for bankruptcy or you want to know what your life will look like if you choose to file, we can help. For more information or discuss your situation with an experienced bankruptcy professional, contact the Law Office of Robert M. Geller at (813) 254-5696