If you receive a cash gift from family members or friends during your bankruptcy you can’t necessarily just deposit into the bank or spend it.
Note that receiving $5 or $10 probably doesn’t matter a great deal here. We’re generally talking about significant cash gifts in the hundreds or thousands of dollars when we discuss cash gifts during bankruptcy. In general, you need to start reporting gifts after they exceed $600, but you should always check with your attorney before spending large gifts. Your specific bankruptcy case may have considerations you’ll need to take into account.
Note that a gift is not the same as an inheritance, which is treated differently under bankruptcy.
Here’s what you need to know.
If the gift was given to you before you filed bankruptcy, then it’s part of your assets and is fair game for the trustee. They will generally take the gift and use it to pay off your creditors unless you can protect it using bankruptcy exemptions.
If the gift comes after your bankruptcy discharge, then it is yours to keep. Once you’ve discharged your bankruptcy, you’re free to reconstruct your life and handle your assets any way you please.
It depends on when you receive the gift. If your payment plan hasn’t been approved yet then the trustee may seek to make that money part of your plan, used to pay off creditors before you start your payment plan.
After, you can generally keep the gift, but you should remain current on your Chapter 13 bankruptcy plan.
Consult With Your Lawyer Before Spending Gifts
The amount of the gift could matter too, so don’t make any decisions without your lawyer’s input. Trustees scrutinize all gifts for signs that bankruptcy fraud has taken place.
You should also consult with your lawyer before attempting to give cash gifts to your friends or family members prior to or during the bankruptcy process. Trustees may see the attempt to give gifts as a fraudulent transfer.
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