Can I Keep Cash in Chapter 7 Bankruptcy?

You can keep cash in Chapter 7 bankruptcy if it qualifies as an exempt asset under bankruptcy exemption laws.

You can keep cash when you file for Chapter 7 bankruptcy, but only if the cash qualifies as an exempt asset. Read on to learn how bankruptcy exemptions can protect your cash if you file for Chapter 7 bankruptcy.

Using Bankruptcy Exemptions to Protect Cash in Bankruptcy

When you file for Chapter 7 bankruptcy, the bankruptcy trustee can take your property in order to pay back unsecured creditors. (Learn how Chapter 7 bankruptcy works.) However, bankruptcy law allows you to keep property, including cash, that is protected by a set of laws called exemptions. For the most part, if a certain item of property or amount of money is exempt under the applicable exemption laws, you can keep it. (To learn more, see our Bankruptcy Exemptions area.)

The exemptions available to you depend on the law in your state. (Find out which bankruptcy exemptions you can use.)

Some states have exemptions that specifically cover a certain amount of cash. Other states have wildcard exemptions or general personal property exemptions that allow you to protect any type of property up to a certain dollar limit. You can use these exemptions to protect some or all of your cash. (To learn more, see The Wildcard Exemption in Bankruptcy.) There are also other exemptions which may cover cash.

Example. Say your state has a wildcard exemption in the amount of $3,000 and you have $4,000 in cash. You can protect $3,000 of your cash with the wildcard exemption. You will probably have to turn over the remaining $1,000 to the trustee, unless you can exempt that amount using another exemption available to you.

Cash That May Be Exempt

Examples of cash or assets readily converted to cash which may be exempt, depending on the exemptions available to you, include:

  • wages (learn more about protecting wages in bankruptcy)
  • IRAs or other exempt retirement accounts or benefits
  • unemployment benefits
  • public assistance
  • cash or bank balances covered by wildcard or personal property exemptions
  • cash in a bank account owned by a husband and wife when only one spouse files for bankruptcy and the non-filing spouse does not owe the debt
  • social security proceeds (even if the funds have been received and are held in a bank account as long as they can be traced back to their source), and
  • personal injury proceeds.

Cash That Is Not Exempt

As a general rule, cash that represents proceeds from an exempt asset that is sold before you file for bankruptcy generally loses its exempt character. For example, if you are entitled to a $2,500 motor vehicle exemption and you sell your car prior to filing for bankruptcy, the sale proceeds cannot be claimed as exempt under the motor vehicle exemption.

Exception. Social Security proceeds are an exception to this rule, as they retain their exempt status as long as they can be traced back to their source.

To find the exemption amounts in your state, and in the federal bankruptcy exemption system, see our Bankruptcy Exemptions area.

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