First, let me say, that if anyone knows the answer to this question can you please come in now? Just as I start to think I have it down cold, a case is assigned to a new trustee - one that turns all my ideas upside down.
Before you get too worried though, let me explain. A trustee is a person, just like you or me (though you may find this hard to believe as you watch them divvying up your stuff...just saying). Therefore, there is an inherently subjective nature to the process of defining and distributing your bankruptcy estate.
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Many of my clients expect this to be a discrete, black or white process. This is not always the case. While there are general guidelines that most trustees will follow, in some instances your guess is as good as mine as to whether your trustee will object to a specific set of facts.
What I usually tell my clients is that you should be safe by attempting to provide your daily necessities for a period of 6 months. You get into rough waters when you extend this definition to include your current superfluous expenses, or attempt to make improvement to your current property or lifestyle.
Sounds pretty vague, huh? Well, that is because it is. But I can say that in most instances, common sense will prevail. Paying for gas to drive to work or an appropriate electric/natural gas bill? You're probably golden. Paying 6-months worth of premium cable with DVR, HD and 1,234,545,234 channels? That may be a problem.
Want another example? Buying groceries, including extra frozen foods to stock up a stand-alone freezer you have in your garage? I think that will pass through just fine. Buying gift cards for some of our great Phoenix restaurants or stocking your cellar with expensive wine vintages? Probably not.
To battle the subjectiveness, us legal types tend to follow previous court rulings to clarify some areas of grey. Today, I would like to mention a few points about grocery store gift cards.
Grocery gift cards make sense, right? I mean, the list of exemptions clearly states that you are entitled to 6 months of food. And really, how is it possible to provide 6 months if food outside some sort of gift card or credit - it really isn't feasible.
Thus it makes sense that there was once a time when this was standard and I would advise my clients to purchase grocery gift cards in an amount equal to approximately 6 months worth.
Now fast forward to April 2009. An Arizona chapter 7 bankruptcy petition was filed in which the debtor claimed a Fry's gift certificate with a face value of $7,000, listed as a schedule C exemption. Now, the trustee wasn't going to have any part of this. As we all know, Fry's sells all sorts of things (gift certificates, patio furniture, electronics), and upon that reasoning she quickly objected.
So what did the court decide? In the end, they sided with the trustee. The Court agreed that the exemption did not apply to gift certificates or gift cards.
An interesting point is that the court acknowledged the argument of the debtor, that the Arizona exemption did not provide that the food or fuel must be "in kind" to be exempt.
However, the catching point was that neither did any of the other exemptions. You can imagine then that, were they to find in favor of the debtor, this argument would be used in support of all types of gift certificates fall under the many chapter 7 consumer exemptions.
What is the moral of the story here? Grocery gift cards are no longer in. Look for my follow-up article, regarding the prepayment of utilities.
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