3 Tips to Prepare for Chapter 7 Bankruptcy
Filing for Chapter 7 bankruptcy is like anything in life; if you don’t prepare, it may not go well. There are ways to protect your assets and retain more of your money. Here are 3 solid tips to assist your Michigan Chapter 7 bankruptcy filing.
Keep Your Cash Safe
The balances in your bank accounts are considered assets in your bankruptcy estate, and are definitely something the trustee can use to settle your debts. There are some exemptions you can use to keep some of your money protected. For example, in Michigan, both welfare and unemployment benefits are off limits. In addition, federal exemptions allow you to protect up to 75% of earned, but unpaid, wages.
However, this does not mean that your money is 100% safe in a bank account. Your bank can freeze your account to perform an offset to settle their debt. Let’s say you have significant credit card debt with your bank. You have an account with cash in it. The bank can lock that account (so you cannot withdraw money) and then use that to pay the balance of the card you owe on.
Because of this continued threat to your cash reserves, you may wish to remove funds from your accounts prior to filing your Chapter 7 bankruptcy in Michigan. You should also redirect your automatic deposits to a different financial institution that you do not owe money to. This will enable you to have cash that you can use so you can buy essentials.
Be Prepared for Expected Inheritance
If you are aware of being a beneficiary of a will or trust, you should keep it in mind when considering your Chapter 7 bankruptcy filing. Typically speaking, cash or assets you receive after your personal bankruptcy is filed in Michigan will not be part of your estate. Therefore, if your favorite aunt gives you an expensive piece of jewelry after you file, the trustee won’t liquidate it to settle your debts.
Inheritances are the one exception to this rule. A trustee may confiscate any inherited asset received within 180 days of the filing date, even if the case has been discharged.
This 180 day period begins once the deceased has passed, not once you receive the gift. So, let’s say your favorite aunt left that expensive jewelry in a will or trust, and you don’t receive it for a year after you have filed, you may still have to hand it over if your aunt died within the 6 month lead up to your Chapter 7 filing. Legally, you are also obligated to report any expected windfalls to the court . Because of these rules, you will want to hire an attorney to help you protect an inheritance before you die.
This protection may include getting creative with exemptions to cover the value of the inheritance. Another possible option could be to have your benefactor put the assets in a trust prior to their death. As a last resort, you could wait and file after the deadline passes.
Regardless, it would be best to discuss the plan with your attorney prior to filing. It could mean saving thousands of dollars and also precious heirlooms, and avoiding being accused of bankruptcy fraud.
Track Your Gift Records
Speaking of bankruptcy fraud, it is important to remember that the court will be watching for transactions that indicate a debtor is concealing assets. This will include large monetary gifts to family and friends, as well as property transfers.
While you may be signing over the title to a car as a gift to your child, it is important to report this type of transfer to the court. Similarly, if you give a destitute cousin more than $600, you have to report it to the trustee and provide records that prove it was a gift. Otherwise, the court could accuse you of fraud and file a clawback suit to force the recipient to give back the asset or pay for it in cash.
When the stakes are high, you need a lawyer to navigate the process. The Mitten Law Firm is available to help you with your Chapter 7 bankruptcy case. Call today for a free, confidential consultation.
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