The other day I met with a young man, still in college who had gotten into multiple accidents over past couple of years. Unfortunately, he wasn’t insured and had racked up tens of thousands in dollars in debt. As you know, medical debt is one of the top three reasons that people file bankruptcy and bankruptcy can completely eliminate those debts.
His case, however, was not that straightforward and simple. During the course of our conversation, I learned that he had a fair amount of cash that he had socked away, almost $30,000.
I asked him a few more questions, like how long he had been living in Colorado, to see which set of exemptions (rules that protect property when you file bankruptcy) we would be able to use: Colorado’s, the state he had moved from, or federal exemptions. After going through each of them, there wasn’t a scenario I could find where all of his cash. Finally, I told him that I didn’t think bankruptcy was his best option while he had such a large amount of cash.
“How broke do I have to be to file bankruptcy?” he asked, exasperated. While $30,000 sounds like a lot of money, he was using the cash to pay his living expenses. If he used it to pay off some of his medical debt (and his medical debt was much higher than how much cash he had), he’d be left without any money to live off.
While bankruptcy can help someone get a new financial start, it doesn’t allow everyone to take advantage of its provision, particularly people who have a significant amount of unprotected, or non-exempt, assets. Even if he used the federal exemptions, which have a fairly generous “wildcard” provision that protects any kind of property, the majority of his cash wouldn’t be protected if he filed. He could convert some of the cash to protected assets, like put some of it in an IRA or use it for necessary items like clothing, rent, medical care, or car repair. Again, though, he would still have a lot of money left over.
In the end, my suggestion to him was that hold off on filing bankruptcy until he spent down his cash. That might mean that he will have to continue to pay his creditors to keep them from suing him. Another option he has is to file chapter 13 bankruptcy, which would let him keep his cash. But that also means that he would have to pay at least the amount of any unprotected assets he has to his creditors.
While I wasn’t able to solve his problems with regard to his creditors, he seemed to be grateful for an explanation as to what his options are. I also gave him some advice on how to deal with his creditors until he could file bankruptcy.
If you’re wondering about whether bankruptcy is a good option for you, we hope you’ll come in for a free, no-obligation consultation with an experienced bankruptcy attorney. By the end of the consultation, you’ll have a better understanding about the process, how long it will take, and how much it will cost.
You can schedule an appointment by using our online scheduling system or by calling 303.331.3403.