CASH AND BANK BALANCES IN MICHIGAN CHAPTER 7 BANKRUPTCY
Cash is one of the most difficult assets to protect in a Chapter 7 bankruptcy. Whether it is buried in your back yard, hidden under your mattress, collected in a Mason jar on your kitchen counter, or safely deposited into a bank account, every penny must be disclosed in your Chapter 7 bankruptcy petition.
As with any asset in Chapter 7 bankruptcy, if it is not protected with an “exemption,” it will be seized by the Chapter 7 Trustee assigned to your case and distributed to your creditors.
However, there are 2 crucial points to keep in mind with regard to the treatment of cash assets in Chapter 7 bankruptcy:
- Assets may be protected either with “Federal” exemptions listed in the US Bankruptcy Code or with “Michigan” exemptions listed in a state statute.
- A debtor in a Michigan Chapter 7 bankruptcy must choose whether to use the Federal or State exemptions and may not pick and choose between them.
Neither the Michigan nor the Federal exemptions specifically provide an exemption for cash as they do for household goods, automobiles, jewelry, tools of your trade, home equity, family photographs, and many other sorts of personal property.
That does not mean that cash cannot be protected. The question is how much can be protected.
The answer to that question is going to vary wildly depending on whether you are using the Federal or Michigan exemptions and depending upon what other property you have that needs protecting.
It is a fact, regardless, that there is a limited amount of cash than can be protected, no matter what.
PROTECTING CASH IN A MICHIGAN CHAPTER 7 WITH THE FEDERAL BANKRUPTCY EXEMPTIONS
Though there is no available exemption for cash, bank balances, or an expected-but-not-yet received source of money (such as a tax refund), the US Bankruptcy Code does provide was is commonly known as the “wildcard” exemption.
This wildcard exemption is currently, as of this writing, $1,325 plus $12,575 of the “homestead” exemption that you would use to protect the equity in your home—if you don’t need it for that purpose.
Thus, if you are a renter or own a home that is “underwater” and which has no equity, you would have the full wildcard exemption amount of $13,900 available to use to protect miscellaneous property that is not covered by any other specific exemption in the Bankruptcy Code.
This does not necessarily mean that you can fully protect $13,900 in cash, although that would be possible.
The wildcard exemption is generally necessary to protect the accumulated value of a wide variety of properties not covered by other exemptions, from collectibles to hobby and exercise equipment to excess equity in automobiles or “toys” such as snowmobiles or ATVs (which are not “automobiles” and not covered by the automobile exemption), and so on.
Opinions may differ among bankruptcy attorneys as to whether they are protected with either the wildcard or household goods exemption, but, arguably, even the household pets may eat up some of your wildcard exemption. (Yes, legally speaking, animals are chattel property that must be disclosed and exempted.)
Virtually everyone has an assortment of things that the wildcard is necessary to protect from seizure by the Chapter 7 Trustee.
Therefore, how much cash can be exempted will depend on what else you have.
It is the prerogative of the debtor in a Chapter 7 bankruptcy to decide, along with his or her Michigan bankruptcy attorney, to decide which exemptions are attached to which properties and for how much the property’s value.
The ability to do this on an educated basis and to maximize the value of your Federal or Michigan bankruptcy exemptions is one of the key reasons why you should retain an experienced bankruptcy attorney to assist you with your Chapter 7 case and not attempt to DIY it.
PROTECTING CASH IN A MICHIGAN CHAPTER 7 BANKRUPTCY WITH MICHIGAN’S STATE EXEMPTIONS
If you and your bankruptcy attorney have elected to utilize the Michigan exemptions rather than the Federal exemptions in the drafting of your bankruptcy petition, it will be because you are attempting to protect your home equity with Michigan’s unique “tenancy by the entireties” exemption or for 1 or 2 other very specific reasons only.
The Federal exemptions are otherwise more robust and expansive in virtually every way than the Michigan exemptions.
In particular, there is not only no specific cash exemption available under the Michigan statute but there is also no “wildcard” exemption available as there is with the Federal exemption set.
That does not mean that you cannot protect any cash with the Michigan exemptions.
Two recent judicial decisions from the judges of the Eastern District of Michigan Bankruptcy Court have confirmed that a Michigan exemption protecting “… provisions and fuel for comfortable subsistence of each householder and his or her family for 6 months” includes the cash necessary to pay for these “provisions and fuel.”
One of these decisions allowed (after objection of the Chapter 7 Trustee) $2,214.71 in bank account deposits to be exempted with this provision. See In re Kim Richardson Judge Applebaum Opinion Denying Trustee’s Objection to Claim of Exemption
Another of these decisions allowed $400 to be exempted with this provision.
Both decisions upheld the debtor’s argument that cash used to purchase “provisions and fuel” were protected.
The decisions differed as to the “de minimus” (minimal—judges love to say “de minimus” though it serves no purpose to do so) amount allowed to be protected under this exemption.
The bottom-line here is that what is “too much cash” will be determined on a case-by-case basis, after you have already filed your Chapter 7 bankruptcy case, and very likely in the course of litigation with the Chapter 7 Trustee, depending on how much cash you are attempting to exempt and protect.
In a footnote in the decision in which the larger amount was allowed exempted, the judge in that matter, Applebaum, specifically noted that the case-by-case considerations include an examination of the debtor’s specific circumstances, including “… whether and why a debtor is not working, the number of family members in the household, the amount of other non-cash provisions already stockpiled, among others.”
Judge Applebaum, in that case, further took under consideration the fact that the Chapter 7 was filed in the midst of the global COVID-19 pandemic, when unemployment numbers had risen sharply.
In other words, there is a lot of room for the picking apart of a debtor’s assets and finances by a court in determining how much cash can be protected.
PROTECTING CASH IN MICHIGAN CHAPTER 7 BANKRUPTCY: THE BOTTOM LINE
The protection of your cash assets in Chapter 7 bankruptcy is a question to which the answer is going to vary in every case. It is essential that you retain an experienced Michigan bankruptcy attorney to represent you in your Chapter 7 proceeding if you have virtually any amount of cash. A lay person simply cannot parse the finer points of the Michigan and Federal exemptions properly without expert assistance.
It is important to keep in mind that the exemptions used to protect your cash and other property are, at the end of the day, simply bits of statutory language about which reasonable or even unreasonable minds can and will differ. They are not a bullet-proof shield.
Chapter 7 Trustees receive a percentage of the funds that they distribute to creditors as a portion of their compensation for that job.
In other words, they are not always objective actors. They are highly skilled and experienced attorneys chartered to represent your creditors’ interests in your Chapter 7 process and a financial motive for objecting to and arguing your exemptions. They will throw an argument against a wall to see if it will stick.
You need the right representation on your side when this happens.
The Law Offices of Walter A. Metzen & Associates offers free consultations for those interested in the bankruptcy process and is experienced in determining and advising as to the best course of action when filing a Chapter 7 bankruptcy in Michigan.