Before bankruptcy, can I spend down my money?
Posted by Robert Weed / in Virginia Bankruptcy / 1 comment
Suppose, when you are filing bankruptcy in Virginia, you have too much cash. You can turn it over to the bankruptcy court to divide among the people you owe money to. Or you can find legal ways to spend it.
(When you file bankruptcy in Virginia, you are only allowed to have $5,000.00 in cash. That’s about the lowest in the country. It’s $10,000 if you are over age 65. Also, your paid for car valued at more than $2,000.00 counts against that limit. )
A lot of people have too much.
Here are some things you can do:
1. Postponed dental work. Many people in a tight spot financially haven’t gone back to the dentist to get necessary things taken care of. You might need three or four thousand dollars worth of dental work. And they can’t repossess your teeth.
2. Laser vision correction. Same as the dentist if you need it.
3. Roth IRA. Everyone who is working is allowed to fund a Roth IRA–whatever other retirement you have (or don’t have.) the limit is $5000 per person–$6000 if you are over age 50. During the January – April 15 (tax deadline) time frame, you can contribute for both the current and the prior year. Although I cannot give you investment advice, I can saw that I have IRA’s with Fidelity and Vanguard.
4. Repairs around the house. If you are planning to keep the house, maybe the gutters need to be replaced, or the a/c unit needs an upgrade. The court can’t repossess fixtures–things that are attached to the house.
5. The Virginia College Savings plan. The 11 USC 541(b)(5) of bankruptcy code protects college saving plan money if it has been in the plan for more two years. ($5000 one to two years.) But, Virginia law gives an immediate, unlimited exemption for the Virginia College Savings plan. (The one set up by the state.) One of the bankruptcy trustees here is challenging that, so we need to be cautious until the court rules.
I won the trial on the Virginia College Savings Plan. But we had what we lawyers call “really good facts.” A young widow who put part of her husband’s life insurance toward college savings of her two infants.
One things I learned form the trial is this. If you put money in Virginia College Savings right before filing bankruptcy–it better be your idea, not your lawyer’s idea.