The most that can be protected at time of filing is $400 for individuals or $800 for a married couple.
In Indiana, the maximum amount of money that can be protected in a checking or savings account is $400 if you filing bankruptcy on your own, or $800 if you are filing as a married couple. In theory, any cash over these amounts can be taken by the trustee. But, don’t fret. Timing your bankruptcy filing can help protect your hard-earned money.
Think of the bankruptcy filing as a “snapshot” of your finances.
How many remember Polaroids? Okay, I likely dated myself there. But seriously – think of the bankruptcy filing as a snapshot or Polaroid of your finances. The trustees are concerned with the amount of cash in your checking and savings accounts at the time of filing.
Here’s why. At the time the bankruptcy case is filed a legal entity is created called the “bankruptcy estate.” At that very moment, what you own – including the funds in your bank account – become subject to the control of a bankruptcy trustee. However, what property you acquire or earned after the bankruptcy is filed (like post-petition wages) remains yours.
This isn’t as scary as it sounds. Indiana law allows debtors to keep a certain amount of equity in real estate, personal property, cash, and retirement funds. This is through “exemptions.” By applying these “exemptions,” equity, personal property, cash, and retirement accounts are removed from the bankruptcy estate and are protected from seizure by a bankruptcy trustee.
Timing the bankruptcy filing is critical to protecting your cash.
Indiana is skimpy when it comes to protecting cash. To avoid this, we time the bankruptcy filing until the total balance in checking, savings, and cash on hand is less than the exemption amount.
Most of us know our monthly cash flow – when we are paid and when our bills are due – so this is easy to calculate. You just aim to file the bankruptcy case shortly after your bills are paid. But always make sure the withdrawals clear the account before filing!
So is making sure the actual balance is correct.
Here’s a common scenario: It’s Friday afternoon. Client Jimmy tells me that he has $200 in his account and is ready to file. I ask him to check his online statement to make sure this is really the amount that is being reported as in his account.
Jimmy tells me that the bank actually shows $2,500 in the account because he was just paid. But he also just wrote a check for his rent, scheduled his car payment through his lender’s website, and paid his utility bills online, so the balance really should be $200.
Not necessarily. Just because Jimmy wrote the check and made the online payments does not mean that the funds actually left his account. It often takes one-to-three business days to clear.
So, if we immediately filed, it is possible that his bank statement will reflect a $2,500 balance on the date his bankruptcy case is filed. Can you spot the problem? Since only $400 can be protected, the trustee will be requesting a check from Jimmy for $2,100 even though that money was already “spent.”
As you can see, timing the bankruptcy case is critical. And so can be the amount in your bank accounts.
If you’re looking to file bankruptcy or just want to discuss your options, you can contact me for a free, no obligation consultation at (317) 830-5993 or email us.