What If I Get Money After Filing Chapter 7 Bankruptcy?

February 8, 2013

The basic rule in a Chapter 7 bankruptcy is, whatever money you are entitled to receive on the day that you file your case is property of the bankruptcy estate. Even if the money is not yet in your possession, if you are legally entitled to receive it, you must list the property in your bankruptcy schedules. Money that you are legally entitled to receive may include: money owed to you; bonuses that are contractually guaranteed; insurance proceeds from a pre-bankruptcy claim; and tax refunds. It may also include inheritance money.

Tax refunds are the most common type of money received after filing bankruptcy. Your attorney will discuss your expected income tax refund with you before you file your case. Even if it is not tax season (after January 1), you could still lose a portion of your income tax refund to the trustee. As the tax year progresses and income taxes are withheld from your wages, you may be entitled to receive some of that money as a refund. Generally, the bankruptcy trustee makes a simple calculation to determine the percentage you are owed based on the date you filed your case. For instance, if you file your case on October 31, that is ten out of twelve months of the year. On the date that you file bankruptcy, you are legally entitled to 10/12 of your income tax refund (all other things being equal, of course).

Even if you are legally entitled to receive money on the day you file your bankruptcy, you may get to keep all or some of it. First, you can use any available legal exemptions to protect cash money. Federal and state laws allow debtors to keep certain property to assist in their “fresh start,” including cash money. Second, even if you cannot exempt all of your cash entitlement, the remaining amount may be so small that it is not worth the bankruptcy trustee’s time to collect and distribute it. In that case, the trustee will declare the property de minimis (Latin for “very small value”) and “abandon” the property back to the debtor.

The bankruptcy law has carved out a special exception for inheritance money that you are not presently entitled to receive on the day you file. If you inherit money within six months after your case is filed, that money is property of the bankruptcy estate – even if your case has been closed by the bankruptcy court. If you learn that you are to receive an inheritance, contact your attorney immediately. The time period is 180 days from the day you file your case to the day your relative passes. When you actually receive the money does not matter.

If you are entitled to receive money, but need to file bankruptcy, discuss your situation with your bankruptcy attorney. There are several options available to protect cash money. You may use legal exemptions, or you may wait to file your case until after the money is received and spent responsibly on necessary expenses. Your attorney can guide you in the right direction to protect as much as possible.
 

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