Once you file for bankruptcy, your life will change in plenty of ways. Many of these changes will be inconvenient. For instance, you'll have trouble securing new credit cards or personal loans for several years after your bankruptcy is discharged. You'll likely be unable to purchase durable goods and electronics on store credit. Since many employers now run credit and background checks before approving any new hires, you may even have difficulty finding gainful employment.
During the bankruptcy process, one of your principal concerns should be maintaining an adequate supply of cash on hand. Assuming that you remain employed, you'll need to save a large portion of your income to help cover your everyday expenses and maintain a cushion in case unexpected costs arise.
At first, this may prove difficult. If you file Chapter 7 bankruptcy, your creditors may seize the bulk of your cash-denominated assets. Few liquid cash equivalents are exempt from potential seizure. In fact, only your 401(k) is protected without exception from hungry creditors.
Traditional and Roth IRA assets are also protected in amounts up to $1.1 million. Since federal law sets annual contribution limits for retirement accounts like these, your ability to stash away large amounts of cash in protected investment vehicles before filing for Chapter 7 bankruptcy may be limited.
After filing for bankruptcy, the trustee appointed to oversee your case will begin to seize your real, durable and cash assets for distribution among your secured and unsecured creditors. Depending upon the laws of the state in which you file for bankruptcy, you may be able to exempt some of your possessions from seizure.
Each asset class comes with its own exemption limits: For instance, Arizona residents can exempt up to $150,000 in real property from seizure during bankruptcy. Limits on cash exemptions tend to be smaller, ranging from 75 percent of wages during the past three months in Oklahoma to $5,000 in bank account assets in Rhode Island.
Once the Chapter 7 bankruptcy process has begun and your creditors have begun to dispose of your non-exempt assets, you may begin accumulating funds in traditional bank accounts once more. You can use this cash to pay for everyday living costs or to service credit facilities originated after your bankruptcy's discharge.
On the other hand, there is no limit to the amount of money that you can keep in your bank account after a Chapter 13 bankruptcy filing. This is because the terms of Chapter 13 bankruptcy generally prohibit creditors from seizing your assets outright.