For many California residents, filing for bankruptcy is a lifesaver. When someone eliminates most of their debt through Chapter 7 or reorganizes their debt, while maybe saving their home, by filing for Chapter 13, they remove a significant financial burden. However, bankruptcy is not a “get out of jail” free card. In the case of Chapter 7, a person must meet some strict requirements. A Chapter 13 debtor must make monthly payments for three to five years while sticking to a strict budget. People have many questions before embarking on their bankruptcy journey. A common one is, “can I still go on vacation?” The answer is usually “yes.” Below, our experienced Roseville, CA bankruptcy attorney from The Bankruptcy Group looks at some of the potential issues and concerns surrounding taking a vacation while in bankruptcy.
Chapter 13 Bankruptcy in California and Vacations
The question regarding vacations tends to come up when someone is considering or currently in a Chapter 13 bankruptcy. Chapter 13 is a reorganization of a petitioner’s debts. Most Chapter 13 bankruptcies last five years, though some last only three. A debtor in Chapter 13 is required to pay their disposable income to their creditors through a monthly payment made to a court-appointed trustee. Often, the monthly amount is dictated by the petition’s debt, their household income, and the value of their personal and real property.
Bankruptcy was designed to provide California residents a fresh financial start. It was not intended to punish or place an individual into a virtual prison. Because of this objective, many protections are available for a petitioner to keep their property and not unduly financially suffer while trying to get back on their feet. The general purpose of bankruptcy is also evident in the budgetary allowances.
One of the documents filed in every bankruptcy is “schedule J.” Schedule J lists a petitioner’s average and ordinary monthly expenses. Many of the allowable expenses are obvious and include a mortgage or rent payment, utility bills, food and clothing, transportation expenses, and medical costs. However, there is a specific section on the schedule to budget for recreational purposes. This expense allowance permits a petitioner to have money available for a vacation or other recreational activities.
However, it is important to note that every case is unique and that there is no fixed amount permitted. A Chapter 13 trustee will consider factors such as household size, monthly income, and the percentage of debt being paid through your bankruptcy plan when determining if the recreational expense is reasonable. For example, if a family of four has a yearly income of $160,000 and the petitioner is paying 100% of their debt through their bankruptcy plan, the trustee will be more generous regarding the recreational allowance. If the petitioner’s budget is tighter and they are only paying 10% to their creditors, then a significantly high recreation budget could be found to be unreasonable. Our knowledgeable Folsom, CA chapter 13 bankruptcy attorney will work closely with you to ensure your budget expenses are reasonable.
Vacations, Bankruptcies, and New Debt in California
Even though a vacation is permitted while you are in a Chapter 13 bankruptcy, there are some potential issues and problems you should consider. First, Chapter 13 bankruptcies are difficult. While the intent is not to punish, that does not mean that it is an easy journey. You will be on a strict budget and it is essential that you do not stray.
Vacations cost money and many people incur additional debt while they are enjoying themselves. If you obtain more debt while on vacation, it will not be part of the bankruptcy. Sometimes a petitioner will be working diligently to discharge or pay their debt through bankruptcy only to dig another hole while taking a vacation.
As stated above, a Chapter 13 debtor is required to make a monthly trustee payment. If a debtor falls behind on this payment, the trustee will file a motion to dismiss the case. The trustee generally understands that financial problems can occur that impact a person’s ability to make their bankruptcy payment. However, if someone misses their payment because they were on vacation, neither the trustee nor judge will be sympathetic.
Vacations Before Filing for Bankruptcy in California
Some potential debtors ask if they should go on vacation before filing for bankruptcy. This is especially the case when someone is thinking about filing for Chapter 7. Unlike Chapter 13, a Chapter 7 bankruptcy only lasts five to six months and a debtor is not required to make any payments to their creditors. While going on vacation while in Chapter 13 is permissible, taking one before filing either chapter is not a good idea.
Bankruptcies are supposed to be filed in good faith. If a petitioner spends a significant amount of money before filing for bankruptcy, it will give the impression that they are abusing the system. When a petitioner files for bankruptcy, they are stating that they are either unable to pay their creditors or need to reorganize to make payments manageable. Therefore, any money spent on a vacation should have been available to a debtor’s creditors. A trustee is liable to file a motion to dismiss your case if they believe it was filed in bad faith. Needing a holiday in the sun is not a reasonable defense to this motion.
Call Our California Bankruptcy Attorney to Discuss Your Vacation Options
People work hard all year, looking forward to that week or two of vacation. If someone is in bankruptcy, they might feel they need a break. Luckily, most people are permitted to take a vacation while in bankruptcy. Nonetheless, you should speak with our experienced Rocklin bankruptcy attorney to understand the potential problems that could occur. Call The Bankruptcy Group at 800-920-5351 to schedule a free, confidential consultation.