Bankruptcy – Do I Have to Give Away All Of My Cash Before I File?
People usually ask before they file bankruptcy: “Do I have to give away all my cash before I file?” One of the most common myths about filing bankruptcy in Georgia is that you have to give away every single dime you have before you file. Don’t let go of any cash until you finish reading this entire post.
When you give away money before filing bankruptcy, a trustee can file a lawsuit against the recipient. Then, the trustee can use the money to pay a pro rata share to your creditors.
The Pre-Bankruptcy Trap
Another cash trap that some people fall into is repaying loans to family members. It is not uncommon to see many young couples borrow money from parents to get through a tough spot. Once tax refund season arrives, the loan to the parents gets paid off.
Many couples with this type of fact scenario are horrified when they find out that a Chapter 7 bankruptcy trustee can sue the parents for the loan repayment. This is called a preference.
In other words, the couple had money to pay toward the creditors but preferred to pay it to their parents (who wouldn’t prefer to pay their parents instead of nasty credit card companies?). Once, the Chapter 7 trustee recovers the money, he will turn around and redistribute it pro rata to all creditors who have proper claims in the case.
If you are considering bankruptcy, the bottom line is that you should not repay any loans or give anything away without speaking to your bankruptcy attorney first.
The question of giving away cash comes up every year around tax refund time. Some tax refunds from the Earned Income Credit can be quite large. In my sixteen years as a bankruptcy attorney, I’ve seen most clients use their tax refunds to catch up on rent, pay medical bills, buy tires for the car, and other necessities of life. This is not a problem. The problem starts when tax refund money starts going to friends and family.
Occasionally, someone will have a few thousand dollars left over and wonder what they should do with it before they file bankruptcy.
How Much Money Can I keep without worrying about the trustee taking it from me?
For an individual, if the cash amount is less than $5,600.00, we won’t have a problem. It can be protected with Georgia bankruptcy exemptions. If its a married couple, $11,200.00 can be protected as well.
Don’t wait until the last minute to file a bankruptcy. Take advantage of a free consultation and come up with a plan ahead of time.