Bonus after Filing Chapter 7

[RGMLM]

I have looked at various threads on this subject but I have not found clarification.

We plan to file Chapter 7 on 11/1 in California. My wife will most likely recieve a material bonus in either late Nov. or Dec., which is after we will have filed, and potentially before our 341 meeting. Can we keep the bonus since we received it after filing? Can we keep it if recieved after filing but before the 341 meeting?

Are there specific rules relating to this or is it that you never know whats going to happen as it just depends on your trustee?

[MrSmithster]

not sure about rules, but at my 341, the tt only went after money received AFTER filing, not before. one couple received $4k tax refund 3 wks prior to filing, tt asked about, but their lawyer mentioned they received it before filing and tt said "ok then". but another couple received a tax refund after filing and before 341 and wanted it, he continued them when their lawyer asked.

[MrSmithster]

but another couple received a tax refund after filing and before 341 and wanted it, he continued them when their lawyer asked.

i meant to say the tt wanted it(the money)

[music12]

a tax refund is considered part of salary that had been earned prior to filing. i think the question about the bonus is whether it had been earned prior to filing and just paid out after, or is it going to be earned in november/december. if it is earned after filing, it's part of the fresh start and the trustee can't touch it. if earned before, it's part of the bk estate. now, which one it is can be murky. i think since you are not entitled to receive it before filing, it is considered earned after.

i think the issue with whether a refund was received before or after is that if it was received before, the debtors had already used it and it was taken into account in filing the petition, whereas if it had not yet been received, the debtors had not yet spent it (so there is something for the trustee to go after).

[berrymom35]

At our 341 the TT told the room before the hearings..."I'm not interested in anything you recieve in any form or for any reason after the date that you filed, unless it is an inheritance within the next 6 months"

[Bell30656]

I had the same BIG question. My salary increased by 30% and I got a bonus after filing but before my 341. Since my lawyer knew I was very concerned about the potential risks if it was discovered, he outright asked the trustee right in front of me at the 341. The trustee reached out and shook my hand and said "Congratulations it will help you begin your new financial life." He also told me that a bankruptcy filing is a photograph not a movie. He was only interested in my financial picture for the day of filing.

[MrSmithster]

At our 341 the TT told the room before the hearings..."I'm not interested in anything you recieve in any form or for any reason after the date that you filed, unless it is an inheritance within the next 6 months"

i guess there is no firm rule then? cuz if the above is true, then even a tax refund received after filing would be exempt? then my TT just took money cuz he felt like it? i dont think so. there must be more to this or it changes by state/district? i watched my TT ask for a filers tax refund with my own eyes, he received after he filed.

[MrSmithster]

and what about filers that have had to give up NEXT years tax refund? its been reported to happen when BKs r filed late in the year

[music12]

i think tax refunds are different because the money behind them had been earned before filing - it's just part of your salary that was withheld.

[Bell30656]

When a person says they are giving up "next year's tax refund" they are forgetting that the money withheld for those taxes came from the present year and were earned/withheld prior to the filing date.

[Never_Again]

The bonus is not earned until it is given. It is "discretionary" as it were, and could be withdrawn at any time due to financial considerations, etc.

An income tax refund is an overpayment of taxes. If you file in August, 8 months (or 3/4) of that years tax refund could be figured to have been earned before filing, and is part of that before filing estate, much like a savings account would be. The wise thing to do in asset protection with a tax refund if you filed in August would be to change your withholding so that you get nothing back, or even end up paying a couple of hundred.

Bottom line, you could have adjusted your withholding before filing, and then that money would have been available as part of the pre-filing estate (income) to pay bills, etc. By not doing so, you essentially made a deposit into a savings account (a pretty bad one, but a savings account just the same.)

Think about it... how many people have themselves overwitheld so that they can get a big tax refund? Quite a few? Since it is a pretty bad decision, it is probably pretty common with those filing for bankruptcy. If someone tries to get a $5K or $6K refund, it is a pretty significant asset for the trustee to go after.

Inheritances have a specific mention in the law, so they are different.

Bottom line, your bonus should be safe. It is not earned yet. You can't spend it until it is earned.

[MrSmithster]

couldnt a bonus be construded as past pay for previous good work done? i doubt a bonus is given for one specific positive result, but based on good overall results from previous work done, prior to receiving the bonus? not trying to aruge, just playing a little devils advocate. does anyone know if there is any firm rule or guidelines to follow for bonus vs taxrefunds? my sister is filing soon and expects a bonus right around her 341 meeting date, so that why im questioning this info. thanks

[Tbornetun]

Tax refunds and bonuses are two totally different things. A tax refunds is an asset that is owed to you at the time of filing, you just haven't received it yet. A bonus is the same as getting a raise in your income. It is not yours until you receive it.

[frogger]

a bankruptcy filing is a photograph not a movie. He was only interested in my financial picture for the day of filing.

That is an excellent way of stating things. Thanks.

[thereshope]

I learned yesterday that I was getting a bonus. Thursday of last week my attorney advised that my petition was ready and I had planned to come into the office this week to sign the paperwork, pay the balance and figure when to file. My attorney advise me to file before I actually get the bonus because one I receive it, it would be included as part of my income. Or I could wait to file. I should add that it was a employee recognize award, not a regular bonus although it doesn't seem to matter a bonus is a bonus. So I'm filing tomorrow which is the last day of the month.