Do I Lose Everything? No, absolutely not.
When filing bankruptcy you are allowed to claim certain property as “exempt” or protected from your creditors and the bankruptcy trustee. Every state has exemption laws which differ. There is also a set of federal exemptions for bankruptcy. However, Arizona law requires that Arizona residents use Arizona’s exemption laws instead of the federal exemptions. Arizona residents can claim the exemptions available by Arizona law only when they have resided in Arizona for the entire two years immediately preceding the bankruptcy filing. If you have not resided in Arizona for the required two years, we will look to the exemptions of other states where you resided 2 ½ years prior to filing bankruptcy and determine if you qualify for using that state’s exemption laws. If you are not qualified to use any state’s exemption laws, then you can use the federal exemptions. Determining which state’s exemption laws apply to you can be tricky. You would be wise to consult a competent Arizona bankruptcy attorney before considering filing bankruptcy.
Choosing the correct exemption laws and determining how to properly convert your non-exempt assets into exempt assets requires careful legal planning. Proper planning can maximize the benefits and minimize the loss of assets when preparing to file bankruptcy.
CASH ASSETS ARE GENERALLY NOT EXEMPT AND SHOULD BE CONVERTED TO EXEMPT ASSETS BEFORE FILING BANKRUPTCY.
On the day that you file bankruptcy you can exempt up to $300 in a single bank account. A married couple can claim a joint bank account as exempt and protect up to $600 in their joint account or each can protect up to $300 in two bank accounts. Therefore, we recommend that you do not file bankruptcy on the day you have your paycheck going into your bank account because any amount in the bank account which is over the exemption amount will not be protected and the trustee in a chapter 7 bankruptcy case can take that amount and use the money to pay your creditors.
If you have an excess of money in your bank account or in any other asset that is not exempt, you can spend the money on exempt assets before filing bankruptcy and thereby protect the asset you purchased so the trustee will not sell it for the benefit of your creditors. This is entirely legal and is recognized by the bankruptcy courts as proper pre-bankruptcy planning.
GOOD CHOICES FOR THINGS TO PURCHASE WITH NON-EXEMPT CASH OR OTHER NON-EXEMPT ASSETS INCLUDE:
- Food, fuel and provisions needed for you and your family for the next 6 months after filing bankruptcy is exempt. Therefore, it is a good idea to use non-exempt assets to purchase the following:
- Buy non-perishable food items. Even after bankruptcy you will need to have food to eat. Therefore, stock up and you will not have to spend as much money on food after filing bankruptcy.
- While it is not practical to store fuel for your vehicles, you can pay your electricity bill ahead for several months. We recommend contacting your electricity utility provider and convert to the “budget” plan so your electricity bill each month is equal. Then you can use some of your cash assets to provide up to six (6) months of “fuel” for you and your family.
- Buy the provisions for your home that you and your family would consume during the next 6 months. “Provisions” is a broad category but it would certainly include the cleaning supplies for the home and the personal hygiene products.
- Pay your car insurance premium for the full 6 months rather than paying on the monthly plan.
- Repair or replace old appliances which have become inefficient or in need of repairs. In any five year period, you can expect to have several major appliances which will fail and cause you to spend money for either repairs or replacement. If you are going to lose the money to creditors if you hold the money at the time you file bankruptcy, it makes sense to spend the money now and avoid future expenses which are almost certain to be incurred.
- Home furnishings may also be in need of repair or replacement.
- Car maintenance expenses are also worthy of consideration as a way to protect your cash assets. In any five (5) year period you will have to replace tires, batteries, hoses, and wipers for your car(s). You will also have to spend money on tune-ups, oil changes and various other items. Most people who are struggling financially have likely neglected to spend money on their vehicles which ends up costing them more money in the long run.
- Consider purchasing more term life insurance or more health insurance.
***CAUTION*** Pre-bankruptcy estate planning is tricky and you should not attempt these strategies on your own without the guidance of a competent bankruptcy attorney.