Crowdfunding Campaign Proceeds Might be Liquidated in a Bankruptcy Proceeding

During medical crises and other periods of intense financial hardship, many families now turn to crowdfunding campaigns. Using popular websites such as GoFundMe and GiveSendGo, loved ones, friends and even strangers can contribute in order to help relieve someone’s debt burden. Of course, these efforts often fail to provide the full amount needed to pay off what the beneficiary owes. When this occurs, bankruptcy might be the next logical step. 

Recently, longtime Bay Area radio personality Ronn Owens and his wife, former reporter Jan Black, filed for bankruptcy shortly after launching a GoFundMe campaign seeking assistance with severe medical debt. The couple reportedly disclosed $2.3 million in liabilities and about $511,000 owed to more than 40 creditors. Black said that the fundraiser remains active while she and her husband work through the legal bankruptcy process.

While crowdfunding and bankruptcy are both common methods for dealing with financial distress, combining the two can present complications. In a Chapter 7 action, the bankruptcy estate includes property you own on the filing date. Money already withdrawn (or available for withdrawal) from a GoFundMe or GiveSendGo campaign before filing typically would be available for distribution to creditors unless protected by an exemption. Even money collected while the bankruptcy is pending could be diverted to pay your debts. Likewise, if you spent the proceeds of crowdfunding campaign shortly before filing, your creditors might have the ability to “claw back” that money. 

Treatment of donated funds is different in Chapter 13 bankruptcy. Property of the estate includes certain assets and earnings you acquire after filing and during the repayment schedule. Depending on how much you receive, the crowdfunding proceeds might justify a modification to the terms of your plan. Trustees will look at the nature, frequency and purpose of the funds when evaluating disposable income and good faith.

Even though donors might have charitable intent when they help with medical bills or some other urgent expense, that does not mean that those funds are protected from creditors. Before launching a crowdfunding campaign or using assets that have been directed toward one that already exists, speak with a knowledgeable bankruptcy attorney about your options. 

Jeff Field & Associates advises Georgia residents on a full range of bankruptcy issues. Please call 404-381-1278 or contact us online to schedule a consultation. Our offices are in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Decatur.