What happens to the income I earn after filing for bankruptcy?
A common question that Atlanta residents have regarding Chapter 7 bankruptcy is whether they will lose all of their property by seeking bankruptcy protection. Here in Georgia, filers are able to hold onto much of their property.
Under the law, certain assets such as homes, cars, retirement accounts and personal belongings are generally exempt from bankruptcy. Additionally, typically only the assets that a person had prior to filing are part of the bankruptcy. Income that a person is expected to earn later generally is not considered, although this is a very complicated area of the law.
The ex-football coach of the Arkansas Razorbacks filed for Chapter 7 bankruptcy last year, and his case was just settled this week after some complicated questions were resolved in regard to his assets.
At the time of his filing, the man claimed that he had $1.3 million in assets and $40.7 million in debt. He was also under contract with the team at the time that he filed in September 2012. That contract stated that the majority of his pay was to be deferred until that winter. The way that the contract was written meant that he was able to claim a low income when he filed for bankruptcy – even though his income was set to rise shortly thereafter.
There were some questions as to whether the contract was structured that way in order to allow the man to keep that money rather than have it be paid to his creditors. However, a bankruptcy trustee ultimately decided that the contract was not fraudulent.
Many bankruptcy cases do not involve such inquiries, but this case is a reminder that, in general, bankruptcy filers can keep what they earn after filing for bankruptcy. Only the assets acquired by the debtor prior to filing are part of the bankruptcy estate.
Source: USA Today, “Ex-Arkansas coach discharged of debt in bankruptcy deal,” Brent Schrotenboer, Sept. 5, 2013