Many people who file bankruptcy in New York do not have much cash and often have few assets to exempt. However, sometimes the opposite happens: Debtors will have more cash than they can exempt under either the federal or state cash exemptions, which appeared on this blog when the topic of income tax refunds came up.
To recap, under the New York exemptions, debtors who take the homestead exemption cannot exempt any cash. Debtors who don’t take the homestead, on the other hand, can claim the lesser of either $5,000 or $10,000 less their personal property exemptions plus a $1,000 wild-card exemption. It’s possible for New Yorkers with more than a few thousand dollars in cash to need more than the cash exemption.
The federal exemptions can be a bit more generous. All debtors can use a $1,225 wild-card exemption for anything, including cash, and debtors who don’t take a homestead exemption can use half of it ($11,500 out of $22,975) for any property. Debtors with large amounts of cash and few other assets might find the federal exemptions preferable.
Debtors who have currency left over, however, have a few options that involve paying off creditors they’d have to pay anyway, or pouring the money into other exemptions. Here are examples:
(1) Pay down debts that aren’t dischargeable anyway, e.g. student loans, taxes, support payments, etc. It will be necessary to wait 90 days to escape a potential preference action by the trustee, and it’s inadvisable to pay debts to insiders.
(2) Automobile exemptions ($3,675 federal, $4,000 New York)
(3) Jewelry ($1,550 federal)
(4) Implements, books, tools of trade for debtor or dependents ($2,300 federal)
(5) Refunding 401(k) loans and investment retirement accounts (IRAs)
(6) Spend on other necessities, like food, medical treatment, repairs, auto maintenance
(7) Pay underwithheld payroll taxes, increase withholding to ensure a current cash surplus dissipates in the future
Although spending cash on luxuries won’t get debtors into trouble the way charging vacations onto a credit card will before a bankruptcy filing, it’s still not advisable. It’s still best to spend the money on something you may need in the future or just to appear prudent before the bankruptcy judge and trustee. Absolutely do not conceal cash or exclude it from the bankruptcy petition. That’s fraud and the bankruptcy court will likely deny you a discharge if it finds out about it.
It’s unusual to have a lot of cash laying around before a bankruptcy, but it doesn’t need to be lost to the bankruptcy estate, and it doesn’t need to be wasted on frivolous luxuries either.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced fair debt collection practices act Bruce Weiner for a free initial consultation.