Should I Go On a Shopping Spree Before Filing Bankruptcy?

Prior to the 2005 changes to the bankruptcy code, it was common practice for individuals contemplating bankruptcy to go on a shopping spree with the intention of having the debt discharged in bankruptcy. Boy have times changed!

When prospective clients come to me with the intention of filing bankruptcy, they often want to know if it would be ok to go on a shopping spree before we file. I tell them all the same thing: "the short answer is a resounding NO!" Any increase in normal spending habits just prior to filing bankruptcy could be considered fraudulent activity.

Going on a shopping spree just prior to filing for bankruptcy could be considered fraudulent if the objecting creditor or trustee suspect, and then prove, that you made these purchases and lacked the intent to pay for them. At the very least this new debt would become non-dischargeable. What this means for a potential debtor is when those purchases are no longer in fashion, or have become obsolete, he or she will still be paying for them. Further, if you give any of these purchases to family or friends as “gifts” you will be guilty of a fraudulent conveyance. If you are found guilty of such a transfer, the bankruptcy trustee could exercise his right to object to the discharge and/or prosecute you for abuse of the bankruptcy system - bankruptcy fraud.

Bankruptcy fraud, a felony, carries a fine of up to $250,000 and/or five years in prison. So the bottom line is, while the temptation to go on a spending spree may be great - JUST DON’T DO IT!