Spending Cash Before Filing?

[justbroke]

The reason why gifts over a certain amount must be accounted, is that other debtors have used this as a way to squirrel money away. Debtors are crafty and the laws reflect the creativeness of debtors trying to hide assets. I do not know how many times where I read cases where these debtors were caught gifting money to relatives, but the money was not a gift. They tell the relative to "hold" the money for them (even putting it into the relative's bank account), and never mention it in the bankruptcy (or list it as a "gift"). Then, after the bankruptcy is over, they go get their money back.

Gifts should be reasonable and commensurate with your financial ability and the need of the recipient. Please, never forget about "bad faith" in bankruptcy! Your less than reasonable financial actions prior to filing, could come back to haunt you in a bad faith motion to dismiss. Unlikely in most cases, but the possibility is there if the Trustee sees the very visible signature of an asset-hiding debtor.

[bcohen]

Umm, you do all realize that when I said "until and unless one files for bankruptcy", what I mean is that a person is free to do those things if they do not file for bankruptcy. In other words, if you do NOT file for bankruptcy, you can spend your money as you see fit, hide assets from creditors, and pay some creditors but not others. Nowhere did I say anything about encouraging bankruptcy fraud! Obviously, if an when a person files for bankruptcy protection, they must fill out the forms completely and accurately, and cooperate with the trustee.

[justbroke]

Actually, hiding assets from creditors is covered under most State non-bankruptcy law. Some States only cover secured property. In Florida, this is covered for both secured and unsecured debt, in F.S. 726.105 under fraudulent transfers to hinder, delay, or defraud creditors. It is quite similar to how the bankruptcy code reads on the topic. I am not saying that you can't turn your non-exempt assets into exempt assets, as this is a good planning tool. In Florida, many sink all their money into their home since our (Florida) unlimited homestead exemption could be an excellent place to put, literally, millions of dollars out of reach of creditors... legally.

I only find real trouble with the blanket... "hide assets from creditors".

Most people do not know they are going to file bankruptcy until very close to the time that they file. Remember, bad faith can go beyond just mere "filling out the forms correctly". Hindering a creditor and then filing bankruptcy could make that debt actually non-dischargeable (if the creditor is smart and seeks a judgment in their favor in the bankruptcy court).

I do agree with that fact that you could "spend" money as you see fit and even make preferential payments to creditors... even insiders like family. But if you're the typical person that does not "know" exactly when they are going to file bankruptcy, preferential payments to an insider relative, could just make you feel miserable when the Trustee goes to recover the assets -- from the insider/relative. Of course, some debtors have no problem with the latter. For some, that (preference recovery) would tear them apart by visiting their problems on a relative.

Bottom line, is that even if you are not filing bankruptcy, you must follow your State's non-bankruptcy laws. In Florida, hiding assets with the intent to hinder, delay or defraud creditors is not legal. (Florida's FTA for reference on Fraudulent Transfers.) My real bottom line is to seek help form a professional asset protection attorney.

Since this debtor, in this particular situation, started the thread with "spending money before filing", then this is in anticipation of filing and no advice other than "spend on necessities", "get deferred medical treatment", "pay your attorney", "ask your attorney about buying an exempt IRA/Roth", etc, are helpful. (The debtor/poster's first sentence even mentioned that they are filing after the first of the year (2014).)

If this was the estate planning forum and the person was asking about ways to spend money in anticipation of a lawsuit, I would still be concerned about "hiding" assets (to delay, defraud, or hinder a creditor).

[nioka]

I am the OP and I am sorry I unintentionally started a debate.

On my question of the Christmas gift; I have decided to make it a birthday gift later in the year.

I have been meeting with attorneys since the beginning of December. I decided I would hold off until January to file. My reason for filing is only to have all BK actions take place in the same year and has nothing to do with the holiday.

According to these attorneys I have no non exempt items. Therefore there is nothing to conceal or convert or to commit fraud with. My concern was how would it look to a trustee, (if he'd even bother to look pre-filing), to see a $550 expenditure from a person, me, filing bankruptcy period.

This brings me to a second question on spending. Once I file I will have a 341 meeting about a month later and about two months later I can expect my discharge. All in all that is about three months. During that period can I spend? I am talking about the fact I am surrendering my house and will be moving. I will need to purchase items for that move, mover deposit, possible storage, etc. I may need to spend on rental deposits. I may need to travel in order to find new housing. What are the guidelines on spending during the bankruptcy?

[justbroke]

You may certainly spend any money that is exempt or that you acquired after filing (so long as it was not from an inheritance, which is a special exception). That is, just go on living your life, paying your bills, buying food, paying for shelter, etc. Your post-filing finances are typically of no concern to the Trustee and are certainly not part of your bankruptcy estate. Again, the only special area of concern are inheritances and property obtained through a dissolution of marriage within 180 days of filing.

I would try to stay in my "surrendered" home as long as possible. Save every dime that would have gone to mortgage and repairs. Keep up insurance. Defer all non-emergency maintenance. Live there until you no longer own the home (a foreclosure judgment has been granted AND the place has sold/transferred). While you are awaiting foreclosure, you can shop around and get a feel for what housing costs are, but I would wait to move! I would save, save, save! The house will continue to be your house unless and until (as bcohen would say!) there is a foreclosure and title to the house passes to another party.

[AngelinaCat]

With JB's suggestion to stay in the surrendered home, this thread turned into a discussion on that matter. Therefore, I took the succeeding posts and moved them into a new thread on that subject. Here it is:

http://www.bkforum.com/showthread.php?81481-Staying-in-a-surrendered-home-after-filing

[avengers]

My situation is similar, but my state's bank exemption is much lower (Arizona: $600 for a married couple).

In my situation, I just got a job and well be getting a ~$3000 pay check on September 19 and another ~$1000 check on September 26. My atty tells me at least 3 weeks to complete the paperwork. I am going to push hard to get it filed before September 30 (so my September income doesn't show up on the means test). But unless I emergency file on or before September 18 (which seems extremely unlikely, my attorney doesn't even have my paperwork or check yet) I'm going to have a lot more than $600 in my bank right before filing. Can I spend the money on exempt property before filing or is that considered hindering creditors or hiding money?

While people here are talking about hiding money or defrauding creditors, I don't see how taking advantage of my state's exemptions is doing anything other than following the law. I'm not planning of withdrawing the money and hiding it under my mattress (or not depositing it in the first place). I'm talking about either opening an IRA (I haven't contributed yet this tax year) or buying a car before I file, and putting that fact in my paperwork.

There's a part of one of the "similar" threads where someone said that as long as you don't go to your 341 and say, "I put the money in an IRA so you couldn't get it," you should be fine. I don't get it. The laws specifically exempt IRAs from bankruptcy. So why couldn't I just invest in an IRA? Isn't that just smart bankruptcy planning?

Another comment said you could only invest in an IRA if you typically invest in an IRA in a similar amount at a similar time. Again, I really don't get it. IRAs are fully exempt. If that comment is true, then IRAs would only be exempt if you don't plan to file BK. But the laws don't say that. They say that IRAs are exempt, without limitation.

[LadyInTheRed]

avengers, what you propose is different than giving a gift to somebody else. The proposed gift by the OP could be seen as a way to have somebody else hold the cash to hide it from creditors.

Converting your non-exempt assets to exempt assets is different. Many see it as good BK planning. But, it is possible a trustee could see it as a fraud on creditors. If the trustee complains, it is up to the judge to decide based on the facts of the specific case whether bad faith or fraud was involved and whether discharge should be denied. Here is an article about a case in Idaho regarding converting a non-exempt asset to an IRA. http://www.forbes.com/sites/jayadkis...imilar-device/ I have not read it all, but from what I did read, it appears to be a good explanation of the issues involved. Keep in mind that the case it discusses is partly based on Idaho law that won't apply to you. But, it also relies on 9th circuit cases which do apply in Arizona.

Check with your attorney before making any large purchases or contributing to an IRA on the eve of BK. That is the best person who can advise you as to how the local trustees may react.

[avengers]

The only creditors I'm paying now are my student loans because they won't be discharged. Can I send excess money to them or is that considered a preference? Seems like preferences are to prevent "similarly situated" creditors. But a student loan lender is not similarly situated to a credit card because the student loan will not get discharged but the credit card will.

[justbroke]

Avengers, that's the nuance in the bankruptcy law. Unsecured creditors and student loan creditors are technically the same -- both unsecured creditors. In fact, payments to student loan creditors are not included in the Means Test as an expense because the student loan creditor is nothing more than an unsecured creditor. However, they are also a non-dischargeable debt. This makes this nuanced.

This is where an experienced attorney can help sort through a preference issue for student loans. Remember, it wouldn't "directly" affect you since the Trustee would claw that money back from the lender. I can't say, and neither can anyone else say, that the Trustee would go after a student loan payment preference. There are just too many factors (district, Trustee him/herself, amount, timing).

This is an excellent question to ask during a "free" consultation with a local attorney to get a feel for the demeanor, attitude and aptitude of the local Trustees.

[ksgirl38]

The only creditors I'm paying now are my student loans because they won't be discharged. Can I send excess money to them or is that considered a preference? Seems like preferences are to prevent "similarly situated" creditors. But a student loan lender is not similarly situated to a credit card because the student loan will not get discharged but the credit card will.

Are they private student loans or federal? If it's federal and won't be discharged anyway I can't see where throwing more money at them would hurt if you have it. Just my opinion. It would only help to lower your overall balance.

Other ways to spend money - prepay auto insurance, or other utilities. I filed July 26th so I prepaid all my August bills - cell phone, gas, electric, rent, cable, etc. You aren't going to spend $3000 that way, but you could probably spend a few hundred paying your insurance.

FYI - I did put money into my Roth right before filing, but it was only a few hundred from some misc stocks and bonds I had to sell right before filing. Overall I think they came to less than $500, but I don't know how much you could safely contribute. I was told by my attorney if I regularly contributed anyway it wouldn't be an issue. I hadn't been able to afford to contribute for several months so it was a non issue.

Good luck.