Updated March 20, 2019
Purchasing expensive items before filing for bankruptcy isn’t usually a good idea. You’ll risk running afoul of one of the following issues:
Learn more about protecting property in Bankruptcy Exemptions: Your Property in Bankruptcy.
Although it’s not a good idea to make large purchases before bankruptcy, whether buying appliances will affect your case will depend on:
Most states allow debtors to retain household goods and appliances as long as the appliances aren’t exceptionally valuable. Your state’s exemption laws tell you the type and value of the property you can protect. If you plan to buy a new appliance, the first step is to make sure that the value doesn’t exceed the amount of your exemption.
If the appliance isn’t fully protected, the bankruptcy chapter you file will determine what will happen to nonexempt property (property that isn’t protected by a bankruptcy exemption).
Exemption planning refers to the process of rearranging your assets to maximize your bankruptcy exemptions. In general, you can engage in a certain amount of exemption planning before filing your case, but it must be reasonable and in good faith. For example, if you have too much cash in your bank account, you can typically spend it on food, rent, gas, car maintenance, or other necessities before filing for bankruptcy. You’ll want to keep good records of your purchases in case the trustee questions you about how you spent the cash.
You might also be able to use the money to purchase exempt assets. If your current appliances are old or in need of repair, then you can buy new appliances in good faith. Of course, you’ll want to be prepared to explain your purchases to the trustee, if necessary. But keep in mind that excessive or systematic conversion of nonexempt assets into exempt ones might be considered bankruptcy fraud. It’s best to speak with a knowledgeable bankruptcy lawyer before doing so.
You can learn more in Can you convert nonexempt assets into exempt assets before filing for bankruptcy?
If you buy household appliances on credit shortly before filing your case, you might not be able to discharge (wipe out) the debt in your bankruptcy. In bankruptcy, if you incur a debt exceeding $725 in aggregate to purchase luxury goods within the 90 days before filing your case, the debt is presumed nondischargeable. (This figure is current as of April 1, 2019; $675 for cases filed between April 1, 2016, and March 31, 2019.)
Luxury goods include items that aren’t reasonably necessary for your support or maintenance. Whether your purchase will be considered a luxury good will depend on the type and cost of the appliance you buy. For example, the bankruptcy court would be less likely to consider a modest oven purchased to replace a broken one a luxury item than it would an expensive television.
For more information, see Why a Creditor May File an Objection to Discharge in Bankruptcy.
If you purchase appliances with in-store financing, the store will typically have a lien on the items you buy. A store with a lien can repossess the goods if you don’t make your monthly payment. Even if your bankruptcy discharge wipes out your liability for the debt, it won’t eliminate the lien on the property, and the store can reclaim it.
In most cases, the cost of repossessing household goods outweighs the benefit to the creditor. However, if the appliances you purchased were expensive, the creditor might have more incentive to try to get them back.