Homer and Marge go Christmas shopping at the Try-N-Save, where frenzied shoppers are quickly snatching the holiday season's most popular toys. Homer, posing as a store cashier, buys toys that customers were attempting to buy from him.
At home, the family makes their last-minute Christmas preparations. At bedtime on Christmas Eve, Marge tells everyone nobody can open presents until 7 AM, and just to make sure there is no cheating, she confiscates all of the alarm clocks in each bedroom. However, Bart, relying on an old Indian trick, drinks 12 glasses of water in order to wake up early to use the bathroom and get an early look at his presents. He awakens at 5:04 AM and secretly unwraps his gifts. One of the presents is the coveted Inferno Buster 3000, a remote-controlled fire truck. Bart has fun playing with the truck, until it sprays water on an overloaded electrical socket, and the Christmas tree bursts into flames. The flames immediately engulf the plastic Christmas tree and all of the presents beneath it. Bart manages to extinguish the fire before it spreads, and hides the burned evidence outside beneath the snow in the front yard.
When the family come downstairs at 7:01 AM and discover that the Christmas tree and presents are gone, Marge asks Bart what happened. Bart lies to them. He makes up a story about how he caught a burglary in progress, and the suspect made off with the tree and all of the family's presents. The police investigate, and Kent Brockman decides to do a human interest story on what he believes is the Simpsons' yuletide misfortune.
As a result of Brockman's report, everyone in Springfield shows their community spirit by giving them a new Christmas tree and $15,000. With the donations, Homer buys a new car. Driving it home Homer gets impatient when he gets stuck behind the Plow King and decides to pass. He unknowingly drives the car onto a frozen lake. The ice cracks, causing the car to sink and blow up.
The next morning, Bart's conscience gets to him, and finally he admits the truth when he disobeyed his family, which prompts Homer and Lisa to choke him. Soon, Kent Brockman and the Channel 6 news crew arrive to do a follow-up story. Homer slaps on a plastic smile and says everyone should stop looking for the "burglar" but that he does exist. The story quickly unravels when a cameraman, with help from Santa's Little Helper, finds the burned remains of the Christmas tree. The family is forced to explain, but it is too late for the viewers, who feel they have been scammed. The citizens shun and harass them until the family can pay back the $15,000.
Marge decides the only alternative is to try and win money by becoming a contestant on Jeopardy!, but she performs very poorly and ends up with -$5,200. After the show, Alex Trebek and two men approach the Simpson family demanding that they pay the $5,200 that Marge was in the red (which doesn't happen in real life), and the family runs away. When they get home, they find that everyone in Springfield (including Alex Trebek) has gathered on their lawn, and Marge thinks they have forgiven them. However, while everyone does forgive the Simpsons, they enter the family's house and steal things from it, except all the curtains and the living room and dining room window sill cushion seats, in order to cover the $15,000 debt. In the end, the family playfully fight over a tattered washcloth, the only thing they have left.