If you are planning to file for Chapter 7 bankruptcy and have some cash in the bank, you risk losing your money to the bankruptcy trustee. Therefore, you should take precautions (within the legal boundaries) of protecting your cash. Here are three precautions that may help:
Keep Clear Records of Your Cash
When you file for Chapter 7 bankruptcy, the money you earned before the application can be used to pay your creditors, while the money you earned after the application is wholly yours. Therefore, your first precaution should be to ensure that there is clear distinction between these two incomes. This means you need to have clean and clear records of your earnings to avoid suspicions of fraud during the bankruptcy process.
Convert the Cash into Exempt Assets
Chapter 7 bankruptcy has an exemption clause that allows you to keep some of your assets; the government doesn't want the bankruptcy to make you destitute. Both the federal and state government specifies the type and value of exempt assets. It's always a good idea to maximize your exemptions so that you can keep as many assets as possible, and one of the ways of doing this is to convert nonexempt properties into exempt properties.
For example, if your cash in the bank exceeds the exemption limit, you can use some of it to purchase exempt items such as clothing, appliances, and home furnishings. Just make sure not to overdo it so that you don't face accusations of bankruptcy fraud; consult a bankruptcy attorney to help you with the conversion.
Protect It with the Wildcard Exemption
A wildcard exemption is a special scheme that some states allow people to use to so that they can keep nonexempt items. In states that have the wildcard exemption, you can apply the scheme to any form of your personal property. Of course, wild card exemptions have their limits. For example, some states allow people to apply the unused portions of their homestead's exemptions towards wildcard exemptions. If that's the case in your state, and you have an unused homestead exemption of $15,000, then you can use it to protect that much money in the bank.
Hopefully, you will get to keep all or most of your funds when you do file for bankruptcy. Whatever you do, make sure that it cannot be misconstrued as bankruptcy fraud. Talk to a bankruptcy attorney as early as possible to help you with the process.
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