Do you want to file for bankruptcy but are afraid of losing your cash if you file Chapter 7 or 13 bankruptcy?
There are cash exemptions in bankruptcy, but the amount of exempt cash in Chapter 7 bankruptcy depends on your residency for the past two and a half years.
Here is a comprehensive guide on keeping cash in bankruptcy and how much of it you can keep.
Cash Exemptions in Chapter 7
Bankruptcy exemptions are laws that allow you to keep your property when you file for bankruptcy. When filing for bankruptcy, the main aim is to settle your debts and get a fresh start. You can file a Chapter 7 bankruptcy case to get rid of your debts.
In Chapter 7 bankruptcy, most of your unsecured debts are eligible for bankruptcy discharge. The court relieves you of the legal obligation to repay the debts when you get a bankruptcy discharge. Chapter 7 bankruptcy also allows you to erase your secured debts like car loans and mortgages by surrendering the property (collateral) to the creditor. Usually, surrendering your property can be helpful if your outstanding loan is higher than the property’s current worth.
Chapter 7 bankruptcy focuses on liquidation. So, while the trustee can liquidate the property to erase your debts, it will be hard to recover from financial hardship if you lose all your property. Thus, the need for exemptions. Exemptions ensure you protect some assets and property so you can continue to meet your basic living needs.
However, you need to meet some income requirements to file for Chapter 7 bankruptcy. Take an online Chapter 7 means test to see if you qualify for bankruptcy. Use a free bankruptcy calculator to estimate how much it will cost you to file for bankruptcy.
Property Exemptions and Facing Unemployment
If you are facing unemployment and have bills that are due, what if you have equity in a home that is above the exemption about?
Firstly, you may want to consider taking an unemployment calculator to help you estimate your unemployment benefit amount.
Does that unemployment benefit help you keep up on your bills? If not, let’s discuss property exemptions.
Chapter 7 bankruptcy focuses on liquidation. When you file your case, the court assigns a Chapter 7 trustee who determines if it is worth liquidating your property. If it is, the trustee will sell your assets to pay off your unsecured debts. However, there is some equity that the law protects from being used to repay lenders. So, if an asset does not have enough net equity to be sold to repay your debts, the trustee won’t sell the property.
You can get the net equity by calculating the fair market value of the asset or property and subtracting any valid lien on the property. For example, if your car is worth $16,000 and you owe $18,000 on the car loan, your vehicle doesn’t have any equity, and thus, the trustee will abandon (not sell) the vehicle.
But if you have a car loan of $9,000 and your net equity is $7,000, the trustee can sell the car, pay the loan, and use the remaining amount to pay your debts. But if the bankruptcy exemption allowed in your case is $7,000, then there is no equity in the vehicle. So, the trustee may not go through liquidating if your debts are substantial.
In the United States, most of the Chapter 7 cases are no-asset cases. Therefore, the trustee does not take any property to sell. So, you get to keep all your property in this case.
Understanding State and Federal Bankruptcy Exemptions
There are state and federal bankruptcy exemptions. Federal exemptions are in the Bankruptcy Code, and they include a list of bankruptcy exemptions that you can claim when filing Chapter 7 bankruptcy to protect the equity in assets. The government revises federal bankruptcy exemptions every three years.
The federal bankruptcy exemptions don’t have a specific cash exemption. Nonetheless, there is a wildcard exemption that you can use to protect as high as $1,325 in any asset. Additionally, there is a $12,575 limit on unused portions of homestead exemption to protect cash. So, you can potentially exempt a certain amount of cash through federal bankruptcy exemptions.
Please note that this covers cash exemptions in bankruptcy, and not taking cash advances before a bankruptcy. You would want to consult your bankruptcy attorney if you’ve taken a cash advance before wanting to file bankruptcy.
The cash includes any money you have, irrespective of where it is. It can be money in a bank account, piggy bank, in your pockets, on your premises, or held by a friend, provided it is your money.
What about the state bankruptcy exemptions and wage garnishment?
The Bankruptcy Code grants states the mandate to create their bankruptcy exemptions. So, state exemptions vary from state to state. When filing a bankruptcy case, some states allow the debt to choose which between federal and state exemptions they would prefer to use in their case. However, some states may require you to use state bankruptcy exemptions. So, the exemptions that apply in your case will depend on your state.
If you have lived in a state for 730 days or more before filing bankruptcy, you must follow the state laws in your resident state on bankruptcy exemptions. But if you haven’t lived in the same state for two years or more, you are allowed to follow the state laws of the state where you lived for 180 days or more before the 730 days.
The amount and type of exemption will vary depending on the state laws. Some states have lower exemptions, while the exemptions are higher in other states. However, most states have wildcard exemptions to protect excess cash, but the extent will depend on the state.
If you are about to be garnished, you could potentially take a wage garnishment calculator to estimate the garnishment amount and understand ways to stop the wage garnishment.
What If I Have Too Much Cash?
If you have too much cash when filing your Chapter 7 bankruptcy, you might be asked to surrender the cash in excess if it is more than the allowable exemption. But if the non-exempt cash is lower, the trustee may abandon the money if you don’t have other assets. So, the money you can keep depends on the non-exempt amount and your total unsecured debts.
Other Options to Filing Chapter 7 bankruptcy?
Before you decide to file a Chapter 7 bankruptcy case, it is essential to understand the bankruptcy exemptions at the state and federal levels. Understanding these exemptions helps you determine if you risk losing your property. While there are advantages to Chapter 7 bankruptcy, it also has its downsides. However, before filing for bankruptcy, it is essential to take the Means test to see if you meet the eligibility requirements.
If you are not eligible to file for Chapter 7 bankruptcy, there are other debt-relief options you can explore. There are other simple ways to help you pay debt fast and affordably. You can research more about debt management, debt settlement, and Chapter 13 bankruptcy. Please note that your Chapter 13 bankruptcy may end in dismissal for non payment, but you may be due a refund if that’s the case.
Get in touch with us for help reviewing other debt-relief options and deciding which is best for your case.