Does the Trustee Have Control of Money Made After Filing?

By Mary Jane Freeman

When you file for bankruptcy, a trustee is assigned to your case. The trustee oversees the process and ensures compliance from the time you file the petition to the final discharge. In a Chapter 7 bankruptcy, the trustee will seize any income earned up to the date you filed your bankruptcy petition and use it to pay your creditors. In Chapter 13, the trustee will instead take your disposable income every month and pay your creditors over a three-to-five-year period.

When you file for bankruptcy, a trustee is assigned to your case. The trustee oversees the process and ensures compliance from the time you file the petition to the final discharge. In a Chapter 7 bankruptcy, the trustee will seize any income earned up to the date you filed your bankruptcy petition and use it to pay your creditors. In Chapter 13, the trustee will instead take your disposable income every month and pay your creditors over a three-to-five-year period.

Chapter 7 and Wages

When debtors file for bankruptcy, they typically file for either Chapter 7 or Chapter 13 proceedings. With Chapter 7, you must give up your nonexempt assets to the trustee who then liquidates them to pay your creditors. Any remaining unpaid debts are discharged and your liability is extinguished. Since money is considered an asset, you must hand it over along with any other property of value. When it comes to wages, however, the trustee takes only the amount of money earned as of the date of your filing the bankruptcy petition, even if you have not yet received it. For example, if you worked on Monday and filed your bankruptcy petition on Tuesday, you are only required to hand over your Monday earnings when payday rolls around, not any subsequent earnings. Generally, trustees don't take wages earned after a petition is filed; however, this may not be true in every state.

Get a free, confidential bankruptcy evaluation. Learn More

Exemptions

With Chapter 7 bankruptcy, it is possible to protect some of your property by claiming an exemption for it; exempt property cannot be seized by the bankruptcy trustee and liquidated. Both state and federal exemptions are available, but you can choose to use only one list of exemptions -- federal or state. And some states don't give you an option, so in those states you can use only the state exemptions. Exemptions protect a wide range of property, from your residence and cars to stocks and pensions. The federal list does not provide a specific exemption for cash, but you can protect up to $1,225 using the so-called wildcard exemption, a catchall category for protecting any item of your choice. You can increase this amount to as much as $11,500 by including any unused portion of the homestead exemption. Most states also have wildcard exemptions. For example, in California, you can protect as much as $26,425 in cash using the wildcard exemption. In some states, a cash exemption is also available.

Chapter 13 and Wages

If you file for Chapter 13 bankruptcy, you don't have to give up any assets to the bankruptcy trustee, including wages, because Chapter 13 involves a repayment plan that lasts from three to five years. Your disposable income is used to make monthly payments to your trustee who then pays your creditors. As with a Chapter 7 bankruptcy, if some of your debts remain unpaid at the conclusion of the plan, they will be discharged and you will no longer be liable for them. In some states, the bankruptcy trustee deducts or garnishes wages from the debtor's paycheck. If this is the case in your state, the trustee in a Chapter 13 case will have some control over your wages since you won't be making your payments voluntarily.

Discharge

How soon your case is fully discharged from bankruptcy court depends on what type of bankruptcy you file. Chapter 7 bankruptcies usually only take a few months to complete -- you receive your discharge shortly after the creditors have been paid with your liquidated assets, if any. But a Chapter 13 case won't conclude until your payment plan is completed, so you won't receive a discharge for several years. Absent unusual circumstances, such as a finding of fraud, the trustee will not pursue your wages once the discharge is complete and your bankruptcy case has been closed.

Get a free, confidential bankruptcy evaluation. Learn More
Ways to Exempt Your Refund in a Bankruptcy

References

Related articles

What Are the Benefits of Filing Chapter 7?

Some of the terms used to describe chapter 7 bankruptcy proceedings have ominous overtones: liquidation, no-asset case, means test and notice of abandonment. They all have their places in the process, but what they let you know is that chapter 7 can offer you a clean slate and a fresh start in much less time than a chapter 13 plan.

What Does It Mean When a Trustee Filed a No-Distribution Report?

Reports of no distribution are the domain of Chapter 7 bankruptcies. In Chapter 7, the trustee takes control of the debtor's nonexempt assets, if any, and sells them to raise as much money as possible to distribute among his creditors. This is in contrast to Chapter 13, where creditors are paid through the debtor's disposable income each month in a court-supervised plan. These creditors invariably receive some money, so a no-distribution report doesn't apply.

How to File for Bankruptcy for a Voluntary Repossession

Other than a house, your vehicle may be the most valuable asset you own, but repossession may seem like your only option when you can’t make your car payments. With repossession, your bank can take your car, sell it and apply the proceeds toward your loan balance. However, bankruptcy may allow you to restructure your loan so you don’t face repossession, and bankruptcy can erase your remaining debt if your vehicle has already been repossessed.

Related articles

What Can Happen if I Don't Give My Income Tax Refund to the Trustee After Bankruptcy?

Once you file for bankruptcy, there are certain rules you must follow throughout the process. For example, you must ...

Chapter 7 Bankruptcy Laws for Personal Debt

Chapter 7 bankruptcy is one of several types of bankruptcy available to debtors. Under a Chapter 7 bankruptcy, any ...

Can a Bankruptcy Court Freeze My Bank Account?

Filing for bankruptcy is often a decision fraught with angst and uncertainty. Debtors are sometimes concerned about ...

Chapter 7 and Abandoned Collateral

Filing for bankruptcy is often the first step in achieving a fresh financial start. But when you file for Chapter 7 ...

Browse by category