Most of my clients facing bankruptcy do not have much in the way of personal savings. In most cases, savings have been spent down to live. Bankruptcy becomes necessary because there are no savings. However, what savings my clients do have becomes that much more important. It is a final safety net, and losing those savings could be devastating. Fortunately, some savings will always be protected in bankruptcy.
Under the bankruptcy code, exemptions allow debtors to protect their personal property from their creditors. Every state has its own set of exemptions, and some allow debtors to opt for the Federal exemptions. This is the case in Pennsylvania. Under the Federal exemptions, debtors can protect their homes, cars, household items, retirement accounts, and most other goods. While there is no explicit exemption for savings, there is a "wildcard" exemption that can be used on anything. This exemption can be for over $11,000, depending on how much must be used to protect things such as equity in a home. It can be less than $2,000 if you have a large amount of equity in your home.
This "wildcard" exemption can be used to protect savings, and it is usually sufficient. Keep in mind, if your savings accounts are joint, only your 1/2 interest in the account must be exempted. Also, if you are married and filing jointly, your exemptions double. This can make protecting more savings possible. It will be important to review and list every account in your bankruptcy petition.
Your total of savings that needs to be exempted is set at the day of filing. So, if it will be close, you may want to file just before a new pay check arrives in your account, or just after you have paid your attorney, car payment, mortgage, or other major monthly expenses. Just because you must disclose your savings doesn't mean you must file at their highest tide. Discussing this planning with your attorney will be important if your savings are pushing the allowable limit. Intelligent bankruptcy planning is a must.
One thing you should NOT do with your savings before filing is hide it, or give it to your friends or family members to hold. This could be considered a fraudulent transfer, and it could prevent you from filing. It is better to speak to an experienced bankruptcy attorney before doing anything with your savings besides living off it. This also includes doing anything with your federal income tax return when you receive it, or it is due to be received..
Contact us if you have any questions about protecting your savings, or if you wish to set up a free consultation. I will be happy to review your situation and help you protect as much property as possible.