Can you clear out your checking account the day before you file a chapter 7 without raising a red flag?

Asked almost 2 years ago - Bradenton Beach, FL

Also can you withdrawal or does the money have to be spent and on what?

Attorney answers (7)

  1. Anthony Matthew Vassallo

    Contributor Level 13

    7

    Lawyers agree

    Answered . It appears that you are planning to do this alone. A bankruptcy trustee and the U.S. Trustee review all bank statements for a certain period of time prior to your bankruptcy filing date. Eyebrows will be raised and questions will be asked if it is evident that cleared out your accounts.

    Such a course of action is unnecessary and likely to bring problems.

    When you file for bankruptcy, you are entitled to *exempt* a certain amount of cash that is yours to keep and use. The idea is to disclose ALL of your assets and exempt what you are permitted by law. Everything else becomes part of the distributable estate to pay creditors.

    There are many "no asset" cases which means that after disclosing all assets and claiming available exemptions, there are no assets that can be liquidated for a meaningful distribution to creditors. The Bankruptcy Code is not intended to leave you totally destitute -- it is intended to give you a fresh start including more than your clothes on your back.

    So, instead of gambling with your ability to get a bankruptcy discharge or risking imprisonment for bankruptcy fraud, discuss your situation with an attorney. You pay them to conduct you through the process, answer your questions and avoid pitfalls.

  2. Alison Nicole Emery

    Contributor Level 10

    3

    Lawyers agree

    Answered . Yes, you can, so long as you list the money as "cash on hand" in your bankruptcy schedules. Sometimes clients need to do this to avoid having their money frozen, which some banks do when they learn of the filing because they take the position that the bank account balance is property of the bankruptcy estate.

  3. William Joseph Kopp Jr.

    Contributor Level 12

    1

    Lawyer agrees

    Answered . Yea is raises a flag. If you spend it on your lawyer, doctors or necessities, then it should be OK.

  4. Gary D. Bollinger

    Contributor Level 19

    2

    Lawyers agree

    Answered . You wrote, "Can you clear out your checking account the day before you file a chapter 7 without raising a red flag?"

    A: By any chance do you know the difference between a yellow card and a red card in soccer?

    You're still in the game if the clear out amount is relatively small; you're out of the game if you cleared out a lot of money without any reasonable explanation.

  5. Harry N. Konst

    Contributor Level 12

    2

    Lawyers agree

    Answered . I enjoyed Mr. Bollinger's soccer analogy! The way you drafted the question suggests that you intend may be trying to work the system. Have a good reason, such as daily expenses, itemized and deal in good faith.

  6. Andrew S. Bresalier

    Contributor Level 5

    Answered . This is based upon a reasonable scale. If you only have $10 in the account, it will likely not be a problem, but if you have $10K, it will be a problem.

  7. Dorothy G Bunce

    Pro

    Contributor Level 20

    1

    Lawyer agrees

    Answered . I just got out of bankruptcy court where my client had done just this without my knowledge, and can confirm that while you can do this, yes it does raise a red flag. Hope this perspective helps!

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