Can You Still Give And Receive Gifts When Going Through Bankruptcy?

Gift giving is an integral part of life. When you're going through bankruptcy, though, you may wonder if you can still give and receive gifts while your case is active. The court generally doesn't have a problem with people giving stuff to or receiving things from friends and family, but here are a few rules to ensure those gifts don't hinder your case.

Gifts with Low to Moderate Value Allowed

A major factor in whether a bankruptcy trustee will take issue with gifts you give or receive will be their value, and they will pay particular attention to anything that leaves your possession in the time before you file for bankruptcy. They want to make sure you're not trying to hide assets by "giving them away" to the people close to you who will conveniently return them once your case concludes.

In general, the bankruptcy court won't come after you about things valued under $600. So, buying your child a video game console for Christmas will likely only trigger pushback if you use a credit card or take out a loan to do it because the court frowns on people taking out more debt right before filing bankruptcy.

Likewise, the court won't take valuable gifts away from you if they are covered by your exemptions or if you receive them after filing for bankruptcy. For example, you get $1,000 for your birthday. If you receive it before submitting your petition, you're required to report the money but can usually use the wildcard exemption of $1,325 to keep it.

Of course, there are always exceptions to the rule, which is why it's important to discuss the matter with a bankruptcy attorney. A lawyer can review your specific situation and advise you on how best to handle it to protect yourself and your loved ones from legal problems that may arise from unwise gift-giving.

Avoid Using Credit Cards or Loans

As noted previously, the bankruptcy court does not like it when people rack up debt prior to filing their petitions. Doing so can result in accusations of fraud from the creditor, and the court may refuse to let you discharge the debt if the creditor can prove their case. Thus, it's best to use cash to purchase any gifts you give to others.

However, even with cash, it's important to keep the value of your gifts within a reasonable amount. The trustee may question any high-value purchases you make. For instance, you buy your father a $5,000 watch for his birthday. The trustee may think you trying to hide cash by spending it on this expensive gift. You may be asked to furnish proof of where you got the money to buy it and that it wasn't an attempt to transfer assets.

Things can get a bit confusing when giving and receiving gifts with an active bankruptcy. For more information, contact a bankruptcy attorney near you.