Spending down savings....suggestions?

[sunshineMN]

Background.....I cashed out my 401k and got around $7000. I had set aside $2000 to pay taxes that I know we're going to owe this year...and the balance was going to go toward a settlement offer on a CC.

After meeting with a lawyer, we're going to file for ch 13...and I'm not going to pay on the settlement offer I received. (oh, we're over $100,000 in CC debt)

That said, I've got around $5000 that I need to spend down before we file. The lawyer said to pay some bills (but we aren't behind on anything other than our CCs) and to buy some food and gas up the vehicles.

Well....I'm not gonna spend $5000 on food, but I will stock up on some. I do have one CC that I'm current on that only has a balance of $900 (used to pay for my property taxes)...I was thinking about paying that off....but not sure if that's a good idea or not???

I thought about having our eye exams (since we're both overdue) and getting new glasses/contacts. We could both use some new clothes/shoes. Hubby could use new tires on his truck. Could stock up on supplies for around the house like shampoo, cleaning supplies, furnace filters, etc.

So, there are things that I'm sure are "acceptable" to spend the money on....BUT, what time frame do I have to spend the money in??? Can I spend it all over a weekend or does that look bad??

Could I "get away" with paying my auto/home insurance in full....and still list it as monthly expense??? Or, can I make some extra payments on my mortgage (that I'm current on)??

The only other option that the lawyer suggested was to put some of the money back into an IRA (since that's where the money came from to begin with). But I would have to do this by the end of the year...and I don't know if I can get that done in time.

Any thoughts??? I have NO problem spending $5000...but want to make sure I do it the best way possible so I don't have any issues!!

Also, is there any limit on how much money I could pull out in cash?? I'd like to have a $200 cash stashed away in case something weird happens.

[NoTomatoCan]

I know you can't spend down $5,000 this way, but my wife and I are in a similar situation. Everytime we go grocery shopping we put a $50 gift card on the tab. Since this is through our bank account check card, it simply shows up as a purchase at the grocery store.

Now I wouldn't go overboard, but it is a good way every other week or so (depending on the timing of your filing) to stock up on something you will definitely use.

Technically these would be viewed as assets by your trustee, so proceed at your own risk. (not the most legit, but probably low risk and very useful)

We are also doing the more traditional stocking up on things like diapers, toilet paper, and other consumables that are always running up our Sam's Club bill!

We are paying our home and auto insurance just prior to filing. That IS a legitimate expense. In fact, I would argue that is the BEST way to do it. If my auto insurance was $1,200 and I budget $100 per month, that does me no good if I have to pay the $1,200 a month into my plan!

There are much more qualified people on this board who will chime in, but sounds like we are in a similar position and that is how I am trying to prepare.

[muzzey58]

I know it's probably not legitimate, but I would give the money to a trust worthy friend or family member. This is only my opinion. You are allowed to keep property in a chapter 13. If you would need another vehicle, then I would go to a local auto auction and buy a really good car with this money. I am in a 13 and the vehicle we had when we first filed in 2006 went bad in only 2 years. The car was paid off on the bankruptcy plan. However, we did not have the $3000 to repair the car. We cut back our budget to the bone and petitioned the court to purchase a newer car with a great bumper to bumper warranty. The trustee tried to stop the petition, but the judge overruled him and granted the purchase. This is why I'm suggesting that you purchase a good car or even purchase a really good warranty for your vehicles. Auto repair is usually one of your largest expenses. You mentioned that you owned your own home, another item would be to replace or update your basic needs in the home. Check your plumbing, electric or appliances to make sure that they will last over the course of the bankruptcy. Paying bills right now is a huge mistake. Most of your debt will be included in your case. Let the bankruptcy pay off these expenses over time. You need to make sure that you are ready for the case. There will be times when we wish you could drop the bankruptcy, but remember that during an open bankruptcy there is an automatic stay to stop creditors from suing you and harassing you. I'm not saying it will be hard, but it definitely changes your spending habits and teaches you healthy ones instead. Good luck with your case and enjoy your friends and family. This is what really matters in life!

[Skipper]

Look into opening an IRA and putting the money back into a retirement account.

S

[Houseofcards]

Can you put the money back into the 401k and save the tax hit? The 401k should be exempt