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Can getting help from crowdfunding affect my ability to file bankruptcy?

On Behalf of | Oct 5, 2021 | Bankruptcy |

GoFundMe sites have been created for many reasons; someone needs an operation, someone’s cat needs an operation, or a family needs enough money to finally have a home. In an era where more bankruptcy cases are filed due to medical debt, it is not unreasonable to turn to crowdfunding as a way to alleviate or abolish your personal debt.

So, what happens if you are deep in debt and create a GoFundMe page? Will the money you raise prevent you from being able to file for bankruptcy if the amount you raise doesn’t cover the debts you have?

The short answer is it could. It depends on how much you raise and which type of bankruptcy you file.

The difference between Chapter 7 and Chapter 13

Chapter 7 bankruptcy is called liquidation bankruptcy because that is what happens— your assets are liquidated. If you raise money via a crowdsourcing platform there is a paper trail. That money, just like lottery winnings, will be used to pay off your debts if you file for Chapter 7. So, for example, if you are $15,000 in debt and receive $5,000 from GoFundMe, chances are all of that will be used to pay off creditors. If you win $20,000, you will pay off your debts and be $5,000 ahead, minus all of your fees.

If you file for Chapter 13, you still have to pay off creditors, just on a monthly basis, based on what you can afford for three to five years. If you are paying $1,000 a month and then get $5,000 one month from GoFundMe, you will be expected to use that money to pay off debt. Chapter 13 does stop creditors from contacting you, which can greatly improve the quality of your life.

If you filed for Chapter 13 and have reached the end of your five years, then whatever debt is left is typically discharged or forgiven. It’s likely that you would be able to keep the money you got through crowdsourcing if you got it after your file was closed. If you fail to notify your bankruptcy lawyer about the money you receive from crowdfunding during your bankruptcy, you could be charged with bankruptcy fraud.

What to consider before turning to crowdfunding

Two things to consider are first, that crowdfunding sites are not “free.” They charge service fees. So you will not get to keep every nickel that comes your way. The other thing to keep in mind is that you may not be as successful as you hope.

There are many people, such as the couple profiled in this Atlantic article, who worked very hard to create successful GoFundMe campaigns. They divulged a lot of personal information and felt as though they bared their soul to the world, yet they did not receive anywhere close to the amount of money they needed to pay off their debt. So, crowdfunding is a risk. To date, filing for bankruptcy is the only sure way to get rid of debt and start again.

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