This is called taking a non-exempt asset (like your coin collection worth $1,500) and converting it to an exempt asset (something I can protect) prior to filing bankruptcy. For example, let’s say that you have a coin collection worth $1,500 and you know that a bankruptcy trustee will want to liquidate it to pay your creditors. You could sell that collection before you file bankruptcy. Now the problem is, what do you do with that money.
You have to spend it. If you have cash left on the day of filing your bankruptcy case, you will have to turn it over to the bankruptcy trustee. There is a danger that a bankruptcy trustee will object and say that you are dissipating assets of the estate in bad faith, and you may want to ask your attorney before selling off and/or spending the money. Remember to keep track of what you sell, how much, buyer’s names, and what you did with the money.
So what can you spend it on? You can spend it on vehicle repairs, new tires, catch up on your mortgage, pay some student loans, etc. You can definitely use it to pay your legal fees for the bankruptcy. I have discussed this elsewhere regarding tax refunds, but it holds true to any non-exempt asset you own prior to filing bankruptcy, and here are the links: