Cash Out Before Bankruptcy

Image courtesy of     Seanfx     (Flickr).

Image courtesy of Seanfx (Flickr).

It’s 2016 and carrying cash seems to be a thing of the past.  It used to be that you had to physically exchange something you had (cash or coins) for something you wanted to purchase.  I firmly believe that this “exchange” made people more reasonable consumers.

We now live in the days of plastic.  Goods and services are purchased with the swipe of a card.  Consumers are unaware of their cash worth and this as ignorance is bliss, it is easy to embrace this mindset.  

Back to bankruptcy...   

Cash, be it paper, coins or deposits in a financial account can create problems when filing bankruptcy.  In Montana, there is no “cash exemption” when filing bankruptcy.  This means that any money you have on hand at the time of filing becomes part of the bankruptcy estate.  

Essentially, your cash automatically gets turned over to the bankruptcy trustee and the trustee uses that money to pay back your creditors.

Cash is the low hanging fruit of the bankruptcy jungle and the bankruptcy trustee is a ravenous gorilla eager to pluck what he/she can. 

Harvest your Cash Before Bankruptcy

Over the past decade, I have noticed a steady shift in the demographic of the bankruptcy filer.  Despite the perception, deadbeats do not file bankruptcy and most of my clients do have some cash and/or savings.  

Prior to filing bankruptcy, your cash must be harvested and by harvested I mean spent.  Again, Montana does not allow for a cash exemption so if at the time of filing you have $1,000 in an account, shoe box, in your brother’s car, etc., that $1,000 must be turned over to the trustee for distribution to creditors.  

Now, if that $1,000 was spent prior to filing, there is nothing to turn over.

While this may sound like fraudulent concealment of an asset, it is not.  Pre-filing bankruptcy planning is an encouraged an accepted part of the bankruptcy process to best provide debtors with a fresh start.  This strategy should not be incorporated without an attorney.

Certain acceptable expenses can and should be paid prior to filing bankruptcy to dispose of excess cash.  These include but are not limited to:

  • Monthly mortgage payments;
  • Mortgage arrears;
  • Attorney fee;
  • Utility Bills; 
  • Car payment;
  • Taxes.

Use it or Lose it

This concept of “use it or lose it” truly applies to cash reserves in bankruptcy.  

While most of us float through our daily existence throwing around our plastic, it is extremely important to be conscious of your cash prior to filing bankruptcy.  

Any pre-filing bankruptcy planning should be entered into with the help of an experienced bankruptcy attorney to avoid potential fraudulent activity.  

Harvest that cash prior to filing and enjoy the bounty of your fresh start.