The bankruptcy process has a number of pros and cons. While it provides a great way to start all over again, it also results in harsh and negative effects on credit scores. Depending on the type of bankruptcy one files for, there may be a way to protect bank accounts.
Many people perceive bankruptcy as a process that results in the loss of all money that an individual in order to pay their debts off. In reality, there are various means tests that must be passed, in addition to credit counselling that must be undertaken prior to filing.
A common question that comes up is that related to the money that is in an individual’s bank account at the time of filing.
A bankruptcy filing (Chapter 7 or 13) won’t necessarily affect your bank account. Money won’t be exempt in some bankruptcy cases, so it’s important to familiarise yourself with the process.
In a Chapter 7 filing, a trustee cannot take exempt property. This means that they will be restricted to liquidating only assets that qualify.
Some careful pre-bankruptcy planning is essential. Known as Asset conversion, it is a legal method that can be used by an individual to reorganise assets to protect as much property as possible from creditors.
It’s important to keep in mind that you should not attempt to defraud creditors. Any conversions that are made should be in good faith.
If you want to protect bank accounts in bankruptcy, you should never misrepresent asset values. Don’t change your lifestyle radically either.
The worst thing you could do is to transfer money to another person’s name before filing for bankruptcy. Don’t hide money either.
It is however legal to use exempt portions of your assets to pay your mortgage, contribute towards your pension plan or to pay down student loans, child support or alimony.
It’s vital to consult with an experienced attorney before filing.