When you file for Chapter 7 bankruptcy, almost all property you have an interest in becomes property of your bankruptcy estate. In most cases, whether you can keep your wages in Chapter 7 bankruptcy depends on:
In Chapter 7 bankruptcy, the wages you earn after filing your case are not considered property of your bankruptcy estate. This means that the bankruptcy trustee can’t take them to pay your creditors. As a result, you are entitled to keep all wages you earn for work performed after your filing date.
Wages you earned prior to bankruptcy but will not receive until after your case is filed are property of the bankruptcy estate. If you are waiting to get paid for work you did before your bankruptcy, you must list that anticipated income as an asset in your bankruptcy schedules.
In general, unless you can exempt your unpaid wages, a Chapter 7 bankruptcy trustee may be able to take them to pay your creditors. But whether the trustee will be interested in going after your wages depends on:
If you have unpaid wages you expect to receive after filing your case, you can typically protect them in bankruptcy by using bankruptcy exemptions or showing the court that you need them to pay for necessary expenses for you and your dependents.
Most states have specific exemptions designed to protect a certain amount of earned but unpaid wages in bankruptcy. If you receive a paycheck on a regular basis (such as weekly or bi-weekly), chances are you will be able to fully exempt your unpaid wages or the nonexempt portion will be small enough that the trustee will not go after it. But if you are expecting a sizable lump sum payment, you may have to show the court that you need the money to pay for your reasonably necessary expenses before you can keep it.
To learn more about how exemptions protect your property in Chapter 7 bankruptcy, see our Bankruptcy Exemptions topic area.
If you are entitled to receive a lump sum payment for work you performed before filing for bankruptcy, it may be harder to protect that unpaid income in bankruptcy. If you can’t exempt all of your expected lump sum wages, the court may still allow you to keep them if you need the money to pay for your reasonable and necessary living expenses.
However, because the court will exercise its discretion when determining whether you can keep any nonexempt wages, consider talking to a knowledgeable bankruptcy attorney in your area before filing your case to learn how the judges in your jurisdiction treat these payments.