It might seem odd to read an article about what to do with extra cash before you file bankruptcy, but the issue comes up more often than you think. Before we file your petition, we’ll ask how much cash you have on hand and whether it came from wages or another source. It’s important to know that in Colorado 75% of cash from after tax wages is protected by our exemption rules. However, except for a few exceptions (like unemployment or Social Security benefits), cash from other sources is generally unprotected. One of the most common sources of cash that isn’t protected is your tax refund.
Depending on how much cash you have on hand and where it came from, before we file your petition we may counsel you to spend it. Otherwise, once you file the bankruptcy trustee can force you to turn it over and distribute it to your creditors who file a proof of claim. Here are a few things you can use the money for to avoid having it taken:
- Unfortunately, you might have to spend it on the costs of your bankruptcy.
- Stock your pantry. Go down to Costco and load up on non-perishables and paper goods.
- Get dental work done that you’ve been putting off because you were trying to pay creditors.
- Get a new set of tires for your car and any other maintenance it might need.
- Put some money in your IRA. Be careful, though, putting too much in there might cause problems.
What’s most important to remember is that if you have extra cash before you file, you don’t want to settle with one creditor just to keep them off your back. If you’re filing, that’s just throwing good money after bad. You also don’t want to repay any money you’ve borrowed from family members. Any money you’ve given to family members for the last year has to be disclosed. You could be forced to turn that money over to the trustee, or worse, your relative could. If you have to repay any money to family members, consider waiting until after you’ve filed. Finally, don’t buy anything that might also not be protected. While Colorado’s exemption rules cover a wide variety of property, some things, like boats and guns, aren’t covered. You could be forced to give up those items as well.
If you have questions about the personal bankruptcy process and would like to meet with an experienced Colorado bankruptcy attorney, we hope you’ll come in for a free, no-obligation consultation. You can schedule an appointment online or call 303.331.3403 to set up a time that is convenient for you.
