Because of the wording in the title, there are two definitive and separate paths that need to be explored. One path is if the debtor has not yet filed the bankruptcy papers, but intends to do so fairly soon, within some weeks or a month. Most experts and legal advisers wrote that if this instance is true then the debtor should drain the account, but use the funds only for household needs. The debtor should keep a log of the money taken and its use. The reason for this is to assure the bankruptcy court that the draining of the account was not for simply hiding the money from the courts. If the courts thought that this was what occurred they would investigate and if found to be true, then fines and jail time would likely ensue. Many experienced, non-expert, non-legal people suggest putting a few months between the account draining and the actual filing for bankruptcy. If hiding the monies is the game, it cannot look like it to the courts. Timing of the withdrawal and time past since the withdrawal are points the assigned bankruptcy trustee will investigate to a point when it found that the account is essentially empty. Also, the amount taken will be a very important consideration. If it is several tens of thousands of dollars, just three or four months before, the trustee will very likely ask, and pursue, where this money went. The people experienced in this situation advised further to either withdraw the monies over a longer period of time, spending a fair amount on household purchases and some fixes, but to not fix up something to make it worth seizing and selling. Then, judiciously put the remaining amount somewhere for safekeeping. That is what some people advised.
The other path occurs if the situation is that there is money in the account and bankruptcy papers have already been filed. If this is true, then, the debtor needs to withdraw whatever is needed to keep the debtor’s household running, log the money taken and how it was spent, and to not have a large amount on-hand. A source for what is reasonable will likely be the debtor’s state’s supplemental rules for bankruptcy exemptions. Several states, and nearly each one is different, have specific amounts of monies in accounts that bankruptcy cannot take, reserving it for the purposes of debtor household survival during bankruptcy proceedings. What will occur once a bankruptcy trustee is assigned, then available assets will be listed, preceding tax returns will be requested and reviewed. Any liquid assets, such as monetary or stock accounts will be liquidated based on the state’s exemption laws to pay off the creditors. The creditors themselves cannot touch any of the debtor’s assets while bankruptcy proceedings continue. The trustee will also ask about recent withdrawals from liquid accounts, to insure that the accounts were not drained in anticipation of the bankruptcy and the freezing of assets that might be seized for payment. Any fraud is severely dealt with by bankruptcy courts.