There are some nuances and a couple of exceptions, but generally, a debtor who has filed for bankruptcy is entitled to keep any income, wages and/or earnings that accrue and are paid to the debtor after the date that the bankruptcy is filed. So, for example, if a debtor files for bankruptcy on the last day of the month and then receives a paycheck from work on the 15th of the next month, likely, the entirety of that paycheck is free and clear from any claims that could be asserted by the bankruptcy court or creditors.
Why? When a debtor files for bankruptcy, on the day that the debtor files, by operation of law, something called the "debtor's bankruptcy estate" is created. On the day that a bankruptcy petition is filed, all of the debtor's assets become the property of the debtor's bankruptcy estate. Unless exempted, the assets in the bankruptcy estate are available to be sold and the proceeds from the sale are then available to be paid over to the debtor's creditors. (It is important to note that all of a debtor's debts enter the bankruptcy estate too.)
However, with some exceptions, anything that the debtor earns or acquires after the day that the petition is filed is NOT part of the bankruptcy estate. Therefore, any post-filing wages, earnings and/or income are NOT available to be seized and sold for the benefit of creditors.
As noted, there are some legal nuances to this general rule. For example, if the paycheck paid on the 15th includes some significant amount of money, like a bonus, that was actually earned in the previous months prior to the filing of the bankruptcy petition, that money earned pre-filing might be deemed part of the bankruptcy estate. Another example might be some entitlement that existed pre-filing, but that had not actualized until post-filing. An example here might be a personal injury lawsuit for a pre-filing injury that is not filed until after the bankruptcy petition is filed. Any personal injury award or settlement will likely be deemed part of the bankruptcy estate.
As also noted, there are exceptions which are specified in the Bankruptcy Code. These exceptions apply if the debtor receives any of these assets within 180 days of filing. If received within those 180 days, the assets become part of the bankruptcy estate (and, thereby, available to be sold for the benefit of creditors).
The exceptions are: money, assets or property received by virtue of:
- An inheritance, bequest or devise
- A divorce property settlement or through an order from a divorce court and
- The debtor being a beneficiary of a life insurance policy or death benefit plan
Contact an Experienced Debt Relief and Debtors’ Rights Attorney
For more information, contact the debtors’ rights attorneys at Guardian Litigation Group. We can help if you think bankruptcy is the right option. We have the tools and experience you need. Our mission is to provide unparalleled legal services and support for those being crushed by their debts and harassed by their creditors. We can also help with debt settlement negotiations for an individual creditor or a group of creditors. We can be reached via our contact page or by phone at (949) 312-4226.