This item is part of a series of blog posts about bankruptcy traps that can turn a Tacoma bankruptcy filing into an expensive or less than smooth process. If you can read Part 1 and Part 2 here.
7. Leaving Money in Account Where You also Have a Credit Account
One expensive error in a bankruptcy filing is leaving money in a bank account where you also have a credit card or some form of debt stemming from a credit account. Filing bankruptcy under these circumstances entitles the bank or credit union to empty your account and apply the proceeds to your debt. Do all banks and credit unions do this? The answer is no, but caution argues for you to start putting your paycheck in a bank or credit union where you have no credit relationship as soon as you know that you are filing bankruptcy.
Many of our Tacoma clients find this troublesome. After all, many of them have had relationships with their credit unions for decades. The fact is though that you don’t have to close your account or take any dramatic action, you just need to put your money someplace else until your bankruptcy is completed. Failing that, I would contact your bank or credit union, maybe anonymously, to find out whether they freeze accounts.
Forewarned is forearmed.
8. Inheritance Within 6 Months After Filing for Bankruptcy
In a Tacoma chapter 7 bankruptcy, the income you receive after your case is filed is, within reason, largely irrelevant to the bankruptcy court. There is one huge exception tough.
If you become entitled to an inheritance within 180 days after your bankruptcy case is filed, you must notify your attorney so that he can notify the bankruptcy trustee. The trustee will then distribute the inheritance in order to pay off your creditors. You will only get what’s left after your creditors and the trustee’s fees are paid off.
It is extremely important to understand that it is not a matter of whether you receive an inheritance within 180 days, the triggering event is someone dying within the 180 day period. If someone does and you are in the will, it can take years for the inheritance to be distributed and the trustee will still be able to come after your share.
9. Personal Injury Claims
If prior to the filing of your bankruptcy you are injured and a personal injury claim arises, the funds stemming from the eventual recovery is personal property. While there are exemptions that will likely enable you to protect at least $20,000 of the eventual award, you should know that just because you haven’t received the funds yet or settled your claim, it has already arisen. A Tacoma Chapter 7 Bankruptcy Trustee will patiently wait until the matter is settled before grabbing any amount not protected by your available exemptions.
You must let your bankruptcy lawyer know if you have been in an accident or expect some type of settlement or payout so that your lawyer can properly advise you as to when your bankruptcy case should be filed. Sometimes it is better to wait until the personal injury claim has been settled and paid before jumping into a bankruptcy case. Other times it doesn’t matter at all.