Most bankruptcy filers can get the debt relief they need, and they never lose any property at all. Unfortunately, though, chapter 7 filers could lose assets in certain situations. For bankruptcy purposes, your home, vehicles, bank accounts, and more are considered property that might be seized and used to pay your creditors. Included in that category is the income you earn from working. Read on to find out how filers can protect their property, including their wages, from seizure during chapter 7.
Protective Exemptions and Income
Every chapter 7 filer has exemptions at their disposal to prevent losing property. Exemptions are somewhat confusing since they are different in each state. One state might give you an exemption for wages of a certain amount while another state might not address wages at all with an exemption. Once you know how your state of residence treats exemptions, you will understand what's at stake with your chapter 7 filing. Exemptions don't just cover wages, though, they cover real estate, vehicles, personal property, and more. It's extremely unwise to file chapter 7 bankruptcy without a full understanding of what you might be losing and what is protected with your state's exemptions.
Wages and Bankruptcy
Just because a consumer has filed for bankruptcy doesn't mean they are to be left destitute. In general, the money you earn at your job is safe from bankruptcy seizure. Those who have larger incomes, though, may face more scrutiny when they file. The bankruptcy codes set limits on the income of filers based on the state's median wage. If the filer earns more than the median, they must fill out a form known as the means test. This test allows filers to list certain expenses that are deducted from their income. This effectively reduces income enough to be allowed to file.
The final issue with wages concerns income earned but not paid before the filing occurs. Several scenarios might exist in which a worker earns money but only gets paid later, such as contract workers or business owners. The bankruptcy courts will take a keen interest in any money provided to a filer during the bankruptcy process. If you typically are paid this way, you may be able to explain that to the trustee and avoid having to forfeit the income. Your income may be safe, but you should disclose it nevertheless to both the bankruptcy lawyer and on the forms.
To find out more about what might affect your real estate, speak to a law firm.