Holidays tend to be fairly expensive, with all the gifts and the holiday traveling, and people usually go into some debt, usually on their credit cards to cover all that cost.
However, if you are currently undergoing Chapter 13 bankruptcy, it might be difficult for you to enjoy your holidays like you are used to.
Difficult – yes, but not impossible. Experts at Chang & Diamond, APC who deal with bankruptcy have given us some tips and suggestions on how to best go through the bankruptcy during the holidays.
Chapter 13 Bankruptcy
Before we go into details, it is useful to remind ourselves what Chapter 13 bankruptcy is and how it works.
In a nutshell, if you are unable to pay off your current debts, you have an option of arranging a different payment plan with your creditors which typically lasts three to five years. This is Chapter 13 bankruptcy.
You don’t have to sell any of your possessions, you don’t write off any debt, you simply reprogram the debt into manageable chunks.
No New Debt During Chapter 13
One of the biggest tenets of Chapter 13 bankruptcy is that you are not allowed to take on new debt. That means that you won’t be able to rely on your credit cards or similar payment methods which incur new debt.
There are certain cases when new debt might be approved, like for medical emergencies or if an important appliance in your home breaks down. However, even then, you would need the court’s permission to take out a loan.
Buying Christmas presents, sadly, is not on the list of things which are generally accepted as important by the courts and you will be denied new loans even if you ask for them.
What Can You Do
Even though the rules of Chapter 13 bankruptcy are very clear and precise, there are some ways you can still enjoy Christmas with some degree of comfort and normalcy.
Your bank might offer you something called “Christmas clubs”. Essentially, these clubs require you to pay small amounts of money each month in order to have extra spending money at Christmas.
A very similar solution is the automated savings system. This system automatically takes a small amount of money from your account and puts it on a separate savings account. You can determine the amounts and the frequency, but even if you only put in $10 each week, you will end up with about $500, which is a decent amount.
These were the simplest solutions which you might employ in order to give yourself a nice holiday season. However, there are some other solutions, which are less common and not as likely to be recommended by a bankruptcy attorney.
Taking money out of your 401(k) is an option which most people are uneasy taking. Taking money out of your retirement plan for spending is generally not recommended, but it is certainly an option. Your attorney will have to file a court motion, and you might be forced to make a repayment plan for the money you took as well.
You can also decide to change your payment plan in order to generate extra spending money. However, there are certain downsides to this approach which make it a very unlikely scenario.
First of all, all of it will cost you money, both at the bank and with your attorney, meaning that you may end up spending hundreds of dollars to get some extra spending money.
The other problem is that you have a fixed amount of money to return in a fixed amount of time. If you lower your repayment for these holiday months, your payments will increase during the rest of the year.
Being caught in Chapter 13 bankruptcy is never an ideal situation, but it can be particularly difficult during the holidays. However, getting the extra spending money on holidays may not be worth the investment. Choose carefully.