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

Bradenton Beach, FL |
Attorney answers 7


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.


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.


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.


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.


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!


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


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.

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