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.
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.)
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:
For more information, see our section on Your Property in Bankruptcy.