In Chapter 7 bankruptcy, you get to keep income you earn after you file your case. This means that wages you earn after filing are yours to keep. However, if you earned the income before you filed for bankruptcy, and received the money after you filed, the money may belong to your bankruptcy estate, and not you. Here’s why.
Property in Your Bankruptcy Estate
A Chapter 7 bankruptcy filing is like a snapshot of your financial situation at the exact moment you file. Your property -- including income you’ve earned but not yet received -- becomes part of the bankruptcy estate. The trustee administers the bankruptcy estate. If property in the estate is not exempt, it’s not yours to keep. (To find out if property is exempt, see our Bankruptcy Exemptions area.)
Income Earned, But Not Received, Before You Filed for Bankruptcy
If you earned income before you filed for bankruptcy, but won’t get paid until after you file, that income is part of your bankruptcy estate. How that income is treated depends on whether you receive income on a regular basis or receive it less frequently in bigger payments.
Income received on a regular basis. If you receive a regular paycheck on a weekly, bi-weekly, or semi-monthly basis, the court will typically not require you to exempt your wages, even if you are paid post-filing for work performed pre-filing. These funds are technically estate property, but as a practical matter, the court views these funds as already spent on your living expenses.
Lump sum payments received less frequently. This might occur, if, for example, you are a contractor and finish a job before you file for bankruptcy, but don’t get paid until after the filing. The bankruptcy trustee is more likely to include this money as part of your bankruptcy estate. You may be able to keep it, however, by:
- Using exemptions. You might be able to exempt the funds using bankruptcy exemptions.
- Demonstrating that funds are needed for reasonable and necessary expenses. If you can show that the funds you are entitled to receive are required to pay your reasonable and necessary expenses, the court often will allow you to keep them. The bankruptcy schedules that list your income and expenses should show that these upcoming funds are part of your income.
For more information, see our section on Your Property in Bankruptcy.