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The lawyers of BK Lawyers LLC practice law from their office in Seattle, Washington. The firm handles legal matters in the following practice areas:

Bankruptcy, Shortsale, & Loan Mods, Immigration and Citizenship Law, Estate Planning, Business Start-Ups, Personal Injury &a…

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Bankruptcy Blog Post

Will my Bank Account Balances Affect my Eligibility for Bankruptcy?

Federal law allows individuals who are struggling with paying their debts to file for bankruptcy in order to obtain relief. Several types of bankruptcy petitions exist for individuals. However, the majority of petitions filed by individuals are pursuant to Chapter 7 and Chapter 13.

Many potential bankruptcy filers mistakenly believe that having any sum of money in a bank or savings account will make one ineligible for bankruptcy. Your current income influences what type of bankruptcy petition you may qualify for under the "means test," but will unlikely be an outright bar to filing.

Federal law requires debtors petitioning for most types of bankruptcy to submit several declarations, or “schedules,” with information regarding their financial affairs, including bank account balances. The bankruptcy trustee evaluates these schedules to determine how much of your funds and other assets will be used to discharge debts versus how much maybe exempt and remain in your possession. It is imperative that this documentation be filed accurately and on time because a failure to list property or assets can result in the debt not being discharged or even criminal penalties.

The means test

The means test is used to evaluate how a debtor’s income and assets compare to the median income in his or her state of residency. If your income is below the state median income, you automatically qualify to file for Chapter 7 bankruptcy, a form of bankruptcy where the majority of your debts are liquidated or discharged. If your income exceeds the state’s median income, the second part of the means test determines whether or not you have enough assets remaining, after the deduction of certain permitted expenses, to repay any of your debt. If your remaining, or “disposable,” income is higher than the permitted amount, you may not be able to file for Chapter 7 bankruptcy and may be qualified to file under Chapter 13 instead.   

Bankruptcy exemptions

Both federal and Washington state law provide debtors filing for bankruptcy with certain exemptions regarding their financial assets and personal property. The financial assets exemption in Washington state currently allows debtors a personal earnings “wildcard” exemption of up to $3,000, of which no more than $1,500 may consist of cash, bank deposits, stocks, bonds, or securities. You may also qualify for additional federal exemptions for your home, vehicle, or other personal property.

In both Chapter 7 and Chapter 13 bankruptcies, a debtor is allowed to retain a certain amount of assets as exemptions under federal or state law. In Chapter 7 bankruptcy, exempt assets may not be liquidated and used to pay off debts. Once the bankruptcy is completed, the debtor is allowed to start accumulating funds in his or her financial accounts once again. Chapter 13 debtors, by contrast, do not have any limit to the amount of money they can keep in a bank account after filing, but any asset which exceeds the legally permitted exemption may be used to determine how much the debtor must pay to unsecured creditors in order to have a reorganization plan approved.

The bankruptcy attorneys at BK Lawyers LLC are available to help you prepare an accurate statement of your accounts in order to protect as many assets as possible. Contact us to schedule your free initial consultation.

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BK Lawyers LLC
101 Warren Avenue North, Suite A
Seattle, Washington, 98109 USA
206-504-2720