This article will tell you in general what you need to know about spending before and after filing a bankruptcy petition. You will also find out what the Trustee is looking for and how he or she investigates a case. If after reading this article you have questions about your unique, specific financial situation, contact the law office of David M. Offen Esq. for a free consultation with an experienced Chapter 7 bankruptcy attorney in Philadelphia.
Why Your Attorney and the Trustee Need Your Account Statements
In the course of preparing your bankruptcy petition and schedules, your attorney will ask you for several month’s worth of statements from any and all checking and savings accounts you have. These bank statements will be used to support the income and expenses you set forth in your filing. They will also be used to prepare your list of exemptions, either state or federal according to your specific financial situation. Money in those accounts and cash on hand can be exempted from the bankruptcy estate in limited amounts which vary by state.
What Does the Trustee Look for in Bank Statements?
What does the bankruptcy Trustee investigate? Among other things, the Trustee looks for suspicious spending or large cash withdrawals. Any suspicious activity on your bank accounts can result in the Trustee determining that you spent money you didn’t have in anticipation of filing bankruptcy, or, that you are trying to hide cash or pay off a loan that a friend or relative gave you. Regardless, these are reasons your discharge can be denied. That’s why it is very important to be careful in your pre-filing spending.
The Look Back Period for Chapter 7 or Chapter 13
Your attorney will submit your bank statements to the Trustee prior to your 341 Meeting of Creditors. The Trustee’s job is to find money to repay your creditors if there is any. He or she needs your bank statements to see if there have been any preferential or fraudulent transfers or luxury purchases during the look back period, which is ninety (90) days for general creditors and one (1) year for insiders like friends and family.
At the 341 meeting the Trustee will ask you whether you have made such transfers or purchases, as well as whether you used your credit cards in the months prior to filing. Credit card debt incurred “in contemplation of bankruptcy” can be deemed nondischargeable. An example of this is when you go on a spending spree in the month before filing knowing that you are going to file Bankruptcy.
“What if I recently sold or gave something away?”
The look back period also applies if you sell or give away any of your assets just prior to filing. The Trustee will ask you if you have done so, and has the power to “claw back” those assets if so. This includes transfers or cash to property to your friends or relatives.
Spending Money Before Filing Chapter 7 or Chapter 13
If you are considering filing a bankruptcy petition, you should avoid making luxury purchases or preferential transfers prior to filing. This means avoiding big purchases such as a second car or a house or an expensive vacation. This also means not repaying a loan to a friend or to family just before filing. If you think you may have already done any of this, you should consult with your bankruptcy attorney about the timing of your filing so that the spending does not appear during the look back period.
Spending Money After Filing Chapter 7 or Chapter 13
Spending While in Chapter 13
If you file a Chapter 13 bankruptcy petition and your case is confirmed, you have shown the court and the Trustee that you have sufficient income to pay your ongoing expenses and also repay your creditors in part. The money you make after the filing date should first be used to make your monthly plan payment to the Trustee. After that, your money is yours to do with as you please, up to a point: if you need to make a large purchase such as a car or a house, you might need the court’s permission. Consult with your attorney.
Spending While in Chapter 7
If you file a Chapter 7 bankruptcy petition and it is a “no asset” case, your spending after filing should reflect what you stated on your schedules. If either your income or your expenses change considerably while still in Chapter 7, again, you should consult with your attorney.
Can I Take a Vacation While in Chapter 7?
If you want to take a vacation while in Chapter 7, this is permissible as long as it is in your budget. Keep in mind, however, there is always the chance the Trustee and/or your attorney will request additional information or documentation while you are away. Since Chapter 7 is over in four to six months, it might be better to wait until you receive your discharge before traveling for an extended period of time.
What Not to do Before Filing Bankruptcy
Because the Trustee will investigate all of your financial activity in the months just prior to the date of filing, you must avoid the following during the look back period:
- making large purchases
- repaying debts to friends or family
- giving away or selling any of your property
- using your credit cards
The bottom line is that your bankruptcy filing should accurately disclose your expenses, income, assets, and debts in the months leading up to filing as well as on the day of filing. And absolutely under no circumstances try to hide a bank account. If you are asking yourself, can the Trustee find my bank account, the answer is yes – it is actually a very simple matter.
For even more about what to know as you are preparing to file bankruptcy, see this article on what not to do before filing bankruptcy.
“Do I need a bankruptcy attorney?”
This article is not meant as legal advice. Instead, it is meant to let you know that the way you use cash or credit before and after filing bankruptcy can impact your case. It may even result in certain debts being deemed nondischargeable, or in your discharge being denied altogether.
Also, keep in mind that the trustee can seize any cash you have in excess of what is exempted and can also “claw back” any property you’ve sold or given away just prior to filing. If you think any of this might apply to you, call or email our bankruptcy lawyers in Philadelphia so that we can help you time your filing to give you the best chance of receiving a discharge and getting a fresh start. Asking questions now and getting the right answers can help you avoid problems later on.