You lose it.
Technically, you don’t lose it, but any money in the account needs to be paid to your creditors. If is is a negligible amount, like $200, then you’re probably safe, but if you have built up a healthy savings account, the trustee will demand that you pay it to your creditors. (This does not apply to retirement accounts like pensions and 401ks. Those are generally safe).
You are going to argue that it makes sense for you to have a savings for a rainy day, but this argument will fall on deaf ears with the trustee. It is the bankruptcy trustee’s job to uncover any assets you own which can be used to pay some kind of return to your creditors.
So, in a chapter 7, the bankruptcy trustee will order you to turn over those funds so that he may distribute them equally among all of your creditors who file claims.
In a chapter 13, you will need to pay that dollar amount to your creditors over a 60 month plan.
I was speaking with a potential client today who qualified for a chapter 7, but had too much equity in her 3 vehicles as well as an $8,000 savings account. Here is the complicated email where I try to think through how to protect the money and the cars:
So in bankruptcy we can protect $3,000 of equity in a car for husband and another $3,000 for wife. This means that if we filed a simple chapter 7 case, we would lose one vehicle.
So, instead, we file a chapter 13 where we file a plan with the court to protect our vehicles and wipe out the unsecured creditors.
Our base payment is $0.00 a month for 60 months to wipe out regular creditors like credit cards and medical bills. However, we need to protect the Explorer. It is worth about $6,000, so we would offer to pay $6,000 back to our creditors total over a 60 month plan. This makes the base payment $100 a month.
$160 a month … The trustee charges about $1,000 to administer the case, and the attorney is awarded $3,250 in fees, so this raises our base payment to about $160 a month.
We have $8,000 in savings. If we spend all of this before filing (like paying down the mortgage), then it is not an issue. Otherwise, we have to contribute this to the plan.
$290 a month… If we keep the $8,000 in savings, we have to pay another $8,000 to our creditors, and our plan payment jumps by $130 a month, up to about $290 a month.
$200 a month… Let’s say that you pay the entire $3,250 in attorney’s fees before we file the case, then you only have $5,000 left in savings, plus $6,000 in the Explorer, and $1,000 to the trustee. Your payment drops to $200 a month.
$110 a month… Let’s say you pay the attorney’s fees of $3,250 before filing, and pay $5,000 towards your mortgage, then you only have $6k Explorer and $1k trustee, and your plan payment is about $110 a month for 60 months.