Written by attorney Jennifer Ann Klock Morel

Bankruptcy & Exemption Planning: what to do with excess cash

Bankruptcy Attorneys have the job of ensuring that their clients are able to retain as many of their assets as possible through bankruptcy, so they can truly have a fresh start after their bankruptcy discharge.

Some people embarking up bankruptcy might have excess cash lying around. This certainly is not the norm, but it is not unusual either. It is important to note that the allowable exemptions (the property debtor gets to keep) vary from state to state, but there are a few broad options that will allow the debtor to get value out of the excess cash without having to surrender it to the Bankruptcy Trustee.

  1. Put the money into a retirement fund. In California retirement accounts are exempt in full.

  2. Prepay bills that will soon become due, such as your homeowners or renters insurance, car insurance, or life insurance.

  3. Pay your taxes and/or pay back your under witholdings

  4. Repair things that you own and are able to keep through the bankruptcy. This could include improvements on your house (that will not substantially increase the value of the property, if that is an issue in your case), repairs on your car or other items you own.

  5. Receive needed medical or dental treatments

  6. Prepay for a large supply of medications you plan to take permanently

  7. Stock up on household necessities such as: nonperishable foods, freezer foods, toilet paper, paper towels, contact solution, batteries, etc.

  8. Pay down any delinquent support obligations you may have

  9. Also, you could use the excess cash to pay down any amount owed on a student loan; however, take note that you will then have to wait at least 90 days before filing for bankruptcy so as to avoid the preferential period look back. This means the Trustee will not be able to reverse the transfer of the cash to the student loan lender as long as you wait at least 90 days to file.

If you have excess cash are considering bankruptcy, it would be wise to speak with a knowledgeable bankruptcy attorney in your area. Many bankruptcy attorneys offer a free consultation and will be able to further advise you on the specifics of your state’s exemption system and what you can do to protect as many of your assets as possible.

DISCLAIMER: This Legal Guide is provided for informational purposes only. Actual legal advice can only be provided in an office consultation by an attorney licensed in your jurisdiction, with experience in the area of law in which your concern lies. This Legal Guide does not form an attorney-client relationship, nor is it intended to be anything other than the educated opinion of the author. It should not be relied upon as legal advice.

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