Legal ways to spend down the bank account

[AZNoName]

I'm sure everyone who knows when filing BK that you need to spend down you bank accounts.
This might not be difficult for some of us, but some people who file Chap 13 have significant incomes and are filing for reasons (such as lawsuits).
How are some legal ways to spend your account down? I've collected some examples (not sure if these are state specific, I am in AZ) and was wondering if you had more:

• Home repairs (new A/C, broken windows)
• needed medical work (eyeglasses, a new crown, that minor surgical procedure that you've been putting off
• 6 months of food
• 6 months pre-pay on the auto or home insurance
• 6 months pre-pay on the electric bill
• Car upkeep or repairs (get the car serviced and flushed, and new tires!)
• replacing that 15 year old mattress

and some other ways which might seem a little tricky:

• paying down a mortgage to take advantage of the homestead equity exemption (if your state allows... I've heard people have issues with this)
• taking out a life insurance policy

Any thoughts?

[despritfreya]

Word of warning. Before anyone pays anything, you better talk to your attny:

1. Pre paying 6 months of auto and/or home insurance does not necessarily work in AZ. Case in point. . . You have 3 months left on current policy (contracted as due but not yet paid) and pay 6 months with intent to renew. Half of the funds goes to the Trustee.

2. In AZ creating equity (cash value) in a life insurance policy that has not be in existence for at least 2 years is not protected, while paying for/purchasing a term policy could be. In addition, even if you have allowed cash value if the beneficiary is not your legal dependant or your spouse, kiss the cash value goodbye.

3. Increasing your homestead may cause a Trustee to invoke 11 USC 522(o).

Des.

[AngelinaCatHub]

Word of warning. Before anyone pays anything, you better talk to your attny:

1. Pre paying 6 months of auto and/or home insurance does not necessarily work in AZ. Case in point. . . You have 3 months left on current policy (contracted as due but not yet paid) and pay 6 months with intent to renew. Half of the funds goes to the Trustee.

2. In AZ creating equity (cash value) in a life insurance policy that has not be in existence for at least 2 years is not protected, while paying for/purchasing a term policy could be. In addition, even if you have allowed cash value if the beneficiary is not your legal dependant or your spouse, kiss the cash value goodbye.

3. Increasing your homestead may cause a Trustee to invoke 11 USC 522(o).

Des.

Good point Des. As many here know, I am against "orchestrative" bankruptcy. To me it is tantamount to "working the system". BK7 particularly is total liquidation except for the exemptions of necessities. to have a bankroll in the bank and not do the "right thing" is just plainly corrupt. If you have a bit in a bank nothing wrong with stocking up with a reasonable amount of exempt stuff. Food, clothing, warmth. But to BANK ROLL future expenses is "money in the bank" with an attempt to beat the system. Either pay the bills owed, then cave to BK, or work out of the financial problem that we all know, we caused upon ourselves due to our unwise actions.

Hiding assets in any way, is detectable, and dishonest. My opinion. 'Hub

[justbroke]

Even in Florida, Trustees have challenged various "spend down" methods including transforming property into to otherwise exempt property. Always best to seek the advice of an asset protection / bankruptcy attorney for your particular State and District.

There is no statutory exemption for pre-paid anything in Florida, except for maybe education in a 529 account or a burial plot. As Des points out, many of the Arizona exemptions have some period of time in which the Trustee can claw-back the property into the Bankruptcy Estate.

I might add that if you are filing a Chapter 13... then why even worry? If you actually have disposable income (disposable monthly income -- DMI), then you will probably pay the "Chapter 7 liquidation value" anyhow. There's no need to dream of ways to transform non-exempt property into exempt property in a Chapter 13.

Of course, this is my opinion based on actually being in a Chapter 13 and receiving a Chapter 7 discharge.

[AZNoName]

Hmm, seems like I touched a nerve. I'm not advocating hiding anything. There's nothing wrong with utilizing the exemptions your state allows (with your attorney's permission)

I'll post this link and leave the subject alone.

http://www.debtlaw.com/articles/PreBankruptcyPlanning.pdf

[despritfreya]

Hmm, seems like I touched a nerve. I'm not advocating hiding anything. There's nothing wrong with utilizing the exemptions your state allows (with your attorney's permission) I'll post this link and leave the subject alone.http://www.debtlaw.com/articles/PreB...cyPlanning.pdf

Yes and what Diane is telling you (I know her quite well) is don't do it and if you do, you may have to pay the consequences.

All I was implying was that unless you know your State's exemptions and all of the nuances that come with them, you cannot make generalizations as to what will and will not work. Even your comment about advance paying utilities is problematic since there is only ONE judge in Arizona who has ruled on the subject and, I am not even sure if that opinion is published.

By the way, if Diane is your attny you picked a good one.

Des.

[jst4f]

Good point Des. As many here know, I am against "orchestrative" bankruptcy. To me it is tantamount to "working the system". BK7 particularly is total liquidation except for the exemptions of necessities. to have a bankroll in the bank and not do the "right thing" is just plainly corrupt. If you have a bit in a bank nothing wrong with stocking up with a reasonable amount of exempt stuff. Food, clothing, warmth. But to BANK ROLL future expenses is "money in the bank" with an attempt to beat the system. Either pay the bills owed, then cave to BK, or work out of the financial problem that we all know, we caused upon ourselves due to our unwise actions.

Hiding assets in any way, is detectable, and dishonest. My opinion. 'Hub

I look at the bankruptcy process like paying taxes. I won't pay a penny more or a penny less than what the law allows. Depending on your situation both can be complex processes that in some cases requires you get expert help to do it correctly, ie within the statutes. Since both processes have gray areas, you have to proceed with caution. In all cases you have to be open with the government representatives and have a complete and accurate filing. A good, ethical, lawyer will get you through the gray areas of bankruptcy un-touched with reputation untarnished. Best of luck

[HHM]

Home repairs (new A/C, broken windows)
needed medical work (eyeglasses, a new crown, that minor surgical procedure that you've been putting off
6 months of food
6 months pre-pay on the auto or home insurance
6 months pre-pay on the electric bill
Car upkeep or repairs (get the car serviced and flushed, and new tires!)
replacing that 15 year old mattress

Honestly, none of those ideas are fool proof and all are very risky. When it comes to pre bankruptcy planning, it ALL depends on the specific circumstances of the debtor.

The only general rule you can rely on is whether the expense was "reasonable" and "necessary.", but as with most vague legal terms like that, there is no certain definition.

For example, new AC if there is nothing wrong with the one you have, bad. If the AC is not working and cannot be repaired, a new AC (especially in AZ), probably okay.

Pre paying expenses that you normally don't pre pay (especially things that are billed monthly) will almost always get an objection.

[Guest123]

I would talk to your lawyer. One thing I found is that many of the answers you get on here are always dependant on your lawyer and the trustee.

We were allowed to stock up on various house hold items and continue to pay utilities in advanced if possible.

As far as paying the mortgage and adding extra insurance I kinda agree that the trustee could look into those.

[kornellred]

For most people filing Chapter 13, the amount of money in their bank accounts is irrelevant. There is not enough to cover living expenses and unsecured debt to begin with. If all of a debtor's expenses and assets are accounted for, and sources of income are accounted for, there is no possible way that a debtor could have more money in the bank than what is "allowed". The trustee could care less about how much money is in your account by the time you get to the 341 meeting. If you have been honest it cannot be too much.

[IamOld]

Forgive me but this is if what you have is over your state's exemption right? I mean I'll have like...$200 on the day I file WELL within my states exemption, but I'll be honest...last week spouse was sick and I was working three nights in p/t job last week, and we spent like $80/90 on "fast food." I hope that's ok if they ask for bank statements...

Look spouse is sick...in bad mood, I'm not home and kids have to eat, and I wish to stay married...

[justbroke]

No one is going to bother you. They are looking for rather "large" transfers of money. They aren't looking for the $30 you spent at Taco Bell. They are looking for the $1,000 that mysteriously disappeared the day before filing... with no explanation of where it went.

[despritfreya]

No one is going to bother you. They are looking for rather "large" transfers of money. They aren't looking for the $30 you spent at Taco Bell. . .

$30 is a lot to spend at Taco Bell. . . I'd be looking at that one. . .

Des.

[justbroke]

$30 is a lot to spend at Taco Bell. . . I'd be looking at that one. . .

Well, it wouldn't be that you're hiding property. There would be some other reason that compelled one to spend $30 at Taco Bell on one visit.

[momofthree]

$30 is a lot to spend at Taco Bell. . . I'd be looking at that one. . .

Des.

Depends on family size. This is why we never eat out. As a family of 5, even fast food costs at least $25 per trip anymore....It's outrageous!