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What You Can and Cannot Do With Your Cash Prior To Filing Bankruptcy

Today I came across this blog article written by a Michigan attorney.  Although the Bankruptcy laws vary slightly from state to state, bankruptcy is a Federal Law and the basics are pretty much uniform throughout the country.  This article addresses a question that potential Chapter 7 bankruptcy filers in Maryland frequently ask, what should I do if I come into a large sum of money before I file bankruptcy but I still cannot afford to pay my bills?  This article addresses the issue very well, so if you are interested, read on: If you are preparing to file for bankruptcy and a Chapter 7 bankruptcy in particular and you have a large amount of cash in your possession, protecting that cash can be problematic. As I’ve described in previous posts, personal property that is “non-exempt” (non-protected) in a Chapter 7 bankruptcy can be seized by the Chapter 7 trustee assigned toyour bankruptcy case and distributed to your creditors. This applies to cash “property” as well, only a limited amount of which can be exempted, or protected. However, there are steps you can take prior to filing for bankruptcy to reduce cash assets in a legal manner. First, what you cannot do with a stockpile of cash:
  • Repay personal loans to family members, friends, or personal business associates if the repayment would bring the amount repaid to that creditor for that debt to $600 or more for the year prior to the filing of your bankruptcy petition
  • Transfer the funds to someone else’s bank account without accounting for it on your own bankruptcy petition in that new “location”
  • Gift the funds to family members or friends
  • Repay commercial debts if the repayment would bring the amount repaid to that creditor for that debt to $600 or more for the 90-day period prior to the filing of your bankruptcy petition
What you can do to reduce cash balances on hand prior to filing for bankruptcy are some other, basic steps that do not involve making a “preferential payment” a creditor, hiding or concealing the asset, or fraudulently transferring the asset. Primarily, these steps are:
  • Paying your attorney fee and the bankruptcy case filing-fee
  • Opening an IRA and depositing the maximum allowable amount
  • Catching up mortgage and car payments—and then waiting 90 days before filing your bankruptcy petition
  • Buying groceries, household supplies, and other non-”luxury” needed goods
  • Making needed automobile and home repairs
  • Getting needed medical or dental care treatment
  • Prepaying home or auto insurance
  • Paying down student loan and income tax debt or delinquent child support or alimony payments
Or, finally, simply living off of the money, paying for groceries, rent, and other standard household expenses until the lump-sum total of the cash balance that you have on hand is low enough that your attorney can exempt it and protect it from liquidation by the Trustee. This is, of course, not an option for those who are in need of the protection of the bankrutpcy Automatic Stay from immediate lawsuits, garnishments, foreclosures, repossessions, or other collection actions. For others, however, a little patience may be in order. If you are thinking about filing Chapter 7 Bankruptcy in Maryland and would like a free consultation by telephone or would like to schedule a free consultation in the office,  call us today at (410) 766-4044 or (301) 589-8700, or e-mail me directly at mdlaws@aol.com.   We represent people throughout the state of Maryland in Chapter 7 banrkruptcy's and are ready to help you today.

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