Can I Buy Household Appliances Before Filing for Bankruptcy?

In general, you should avoid making large purchases before filing for bankruptcy.

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:

  • The exemption amount available to you might be too low to protect the appliance.
  • If you buy an appliance on credit shortly before filing your case, the creditor might have grounds to declare the debt nondischargeable, leaving you responsible for paying the obligation.

Learn more about protecting property in Bankruptcy Exemptions: Your Property in Bankruptcy.

Factors Affecting Appliance Purchases Before Bankruptcy

Although it’s not a good idea to make large purchases before bankruptcy, whether buying appliances will affect your case will depend on:

  • the value of the items purchased
  • when you purchased them
  • whether you bought them with cash, credit card, or in-store financing, and
  • the bankruptcy exemptions available to you.

Make Sure You Can Exempt Your Purchases

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).

  • If you file for Chapter 7 bankruptcy, the Chapter 7 bankruptcy trustee will sell nonexempt assets and use the proceeds to pay back your creditors. If your property is partially protected by an exemption—for instance, you have a $400 exemption for a washing machine worth $1,000—the trustee will sell the washer, give you the $400 exemption amount, and use the remainder to pay creditors.
  • Nonexempt property works a bit differently in a Chapter 13 bankruptcy. You get to keep all of your property. However, you’ll pay your creditors the value of your nonexempt property, or your disposable income, whichever is greater, for the duration of your plan.

Excessive Exemption Planning Can Get You in Trouble

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?

Debts Incurred Shortly Before Bankruptcy Might Be Nondischargeable

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.

Be Cautious When Using In-Store Financing

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.

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