Holiday Spending and Bankruptcy: What Not to Do Before You File

The holidays can put pressure on any budget. Gifts, travel, parties and higher bills add up quickly, and many South Florida families lean on credit cards to get through the season. If you're already struggling with debt and thinking about bankruptcy in the new year, what you do over the next few weeks matters.



Certain purchases, cash advances and payments made shortly before filing can create problems in your case. At the Law Offices of Michael H. Johnson, we help clients in Fort Lauderdale, West Palm Beach and across South Florida avoid these mistakes. Here's what not to do before you file.

1. Don't Run Up Your Credit Cards

It may be tempting to charge holiday gifts if you expect the debt to be wiped out in bankruptcy. Don't. Bankruptcy is designed to give honest debtors a fresh start. If you take on debt with no intention of paying it back, a creditor can ask the court to declare that debt non-dischargeable because of fraud.

Creditors and trustees review account activity in the months before filing. A sudden spike in spending is a red flag.

2. Watch the Luxury Purchase Rule

Federal bankruptcy law presumes certain recent charges are not dischargeable. For cases filed between April 1, 2025 and March 31, 2028:

• Luxury goods or services: More than $900 owed to a single creditor for purchases made within 90 days before filing
• Cash advances: More than $1,250 in cash advances taken within 70 days before filing

"Luxury" doesn't only mean designer handbags. It generally covers anything not reasonably necessary for the support of you or your dependents. That can include electronics, jewelry, vacations and expensive gifts. Everyday needs like groceries, gas and utilities are treated differently.

3. Don't Take Cash Advances or Balance Transfers

Cash advances and balance transfers made shortly before filing get extra scrutiny. Using one card to pay off another, or pulling cash from a credit line to cover holiday expenses, can lead a creditor to challenge the discharge of that debt.

4. Don't Pay Back Family or Friends

If a relative loaned you money, you may want to pay them back before you file. This can backfire. Payments to family members, friends or business partners within one year before filing may be treated as "preferential transfers." The bankruptcy trustee can sue your loved one to recover that money and divide it among all your creditors.

The same rule applies to regular creditors for a shorter period. For consumer debtors, paying one creditor $600 or more in the 90 days before filing can also be clawed back.

5. Don't Give Away or Transfer Property

Giving a car to your child, adding a relative to a deed or selling something for far less than it's worth can be treated as a fraudulent transfer. That is true even when the gift was well meant. Trustees can look back two years under federal law and up to four years under Florida law. Transfers like these can put your discharge at risk.

Many assets are already protected by Florida's exemptions. Read more about keeping your home and car after filing bankruptcy in Florida.

6. Don't Drain Your Retirement Accounts

Most retirement accounts, such as 401(k)s and IRAs, are protected in bankruptcy. If you cash them out to pay holiday bills or credit cards, you lose that protection. You may also owe taxes and penalties, all to pay debts that could have been discharged anyway.

7. Don't Ignore Lawsuits or Collection Notices

The holidays are busy, but court deadlines don't pause. If you're served with a lawsuit and don't respond, the creditor can get a default judgment and begin garnishing your wages or bank account. Learn how bankruptcy can stop wage garnishment in Florida.

What You Should Do Instead

• Set a cash budget for the holidays and stick to it
• Keep paying for necessities such as rent or mortgage, utilities, food, insurance and car payments
• Keep good records of your income, expenses and any large transactions
• Be honest with your attorney about recent purchases, payments and transfers
• Talk to a bankruptcy attorney early, before you make major financial decisions

Timing can make a real difference. In some cases, waiting a few weeks to file can avoid problems with recent charges. In others, filing sooner protects your wages or property. An experienced attorney can help you choose the right moment. Learn more about the bankruptcy process and what debts can and cannot be discharged.

Frequently Asked Questions

Can I still buy holiday gifts if I plan to file bankruptcy?
Modest, reasonable gifts paid for with cash or your regular income are generally fine. The concern is charging significant amounts on credit shortly before filing, especially for non-essential items.

I already used my credit cards for the holidays. Can I still file?
Yes. Recent charges don't prevent you from filing, but they may affect the timing of your case or whether a specific debt is discharged. Tell your attorney about all recent activity so you can plan accordingly.

How long should I wait to file after using my credit cards?
It depends on what you charged and how much. The 90-day and 70-day periods are important guideposts, but every case is different. Your attorney can advise you on the best time to file.

Start the New Year With a Plan

If holiday bills are adding to debt you already can't manage, you don't have to face it alone. Attorney Michael H. Johnson has more than 24 years of experience helping South Florida residents get a fresh start through Chapter 7 and Chapter 13 bankruptcy. When you call, you work directly with him.

We offer free, confidential consultations and payment plans. Call 954-737-5800 or contact us online to schedule yours.

Disclaimer: This article is for general informational purposes only and is not legal advice. Reading it does not create an attorney-client relationship. Every situation is different, so please consult a qualified bankruptcy attorney about your specific circumstances.