Here are some things to spend that currently non exempt cash on that are exempt, or unappealing to a bankruptcy trustee:
- Fund IRA’s
- Obtain cash value life insurance up to exemption limit
- Repay 401(k) loans
- Prepay home or auto insurance
- Catch up on tax under-withholding
- Get needed medical or dental treatment
- Repair the things the client has
- Tune-up car
- Stock pantry & freezer
- Pay down student loans, delinquent support, priority taxes
Paying down the student loan will require that the client wait 90 days to file, putting the transfer beyond the preference period look back.
Look through the list of available exemptions where you practice and look for ways the debtor can increase the value of any asset currently worth less than the maximum exempt or acquire an asset that would be both useful and exempt going forward. ( I generally don’t advise maximizing the exemption for a mule or a plow for instance.)
Exemption planning is an issue that is exquisitely local: available exemptions vary from state to state and the local view of what is permissible exemption planning rather than actions to hinder delay or defraud creditors vary.
None of these suggestions, in my view, push the envelope. But read some cases in your jurisdiction for a look at the prevailing attitude. Talk to veteran practitioners.
It’s your job to help the client retain as much value as they can for their fresh start.
Image courtesy of Library of Congress