Don’t Cash Out Savings To Hide Money
When you file for bankruptcy, your creditors are entitled to receive a percentage of funds determined under bankruptcy law. For instance, priority creditors get paid first, while the majority of others take a pro rata share in any remaining amount.
Am I outsmarting creditors by withdrawing from my savings account before I file for bankruptcy? Short answer is NO. It may seem like you are outsmarting your creditors but what you really are doing is committing a “Bankruptcy Fraud”. However, sometimes you have to spend your savings before you file for bankruptcy so long as you are not favoring one creditor over another. You should think long and hard before doing so. Read on for tips on if and when emptying out your bank account is a good move.
Cashing Out Your Savings Account To Hide Money From The Trustee or Creditors Is A Federal Crime
Bankruptcy fraud has serious consequences. The intent of hiding your money from the bankruptcy trustee through bank withdrawals is crime. You are putting your bankruptcy case at risk. Aside from losing your discharge, you may even be prosecuted for your crime. Therefore, taking money from your savings account just to hide it is a terrible idea.
Withdrawing From Savings Account To Maintain Residential Or Commercial Property
If you are applying for exemptions, withdrawing and spending your savings to maintain your property can be advantageous. In Chapter 7 bankruptcy, your trustee can liquidate your nonexempt property and use the proceeds to pay your creditors. With bankruptcy exemptions, you can save your residential or commercial property. For as long as your asset can be qualified for the exemption, you can keep it.
Transferring Funds From One Account To Another
If you are aware that the bank will freeze your account, withdrawing your money may be the best step to take. Bank accounts are not automatically frozen when you file for bankruptcy. However, it can happen. Some banks and credit unions may freeze your accounts once you file for bankruptcy. Most likely, you will be required to present proof that the funds in your accounts are exempted from bankruptcy before they can let you get your hands on them.
Additionally, if you have a bank account with the bank or credit union where you also have an outstanding debt, the bank or credit union can ask the bankruptcy court to freeze your account and even demand payment using the money saved in your account. For this reason, it is better to just transfer your funds to another bank or withdraw your money altogether. Be mindful, though, that even if you keep the funds as cash, you still need to declare it during a bankruptcy filing.