Personal Services Contract

[doomed]

Ok guys, my lawyer determined that the contract I'm currently in (but haven't received payment from yet) would be determined to be a personal services contract and thus exempt from being part of the bankruptcy estate.

Now, my question is, I'm scheduled to receive a portion of the money on the 1st of September -- will they count this money as income, thus screwing up my monthly income? That's if I even get PAID then, the contract says I should but my previous experience with this is, they're always WAY late.

And if they do count it, will it push me into a Chapter 13? The contract will only pay out for about 10 months and that is if all goes well.

So I guess what I'm asking is . . what exactly does it being exempt mean?

[doomed]

Anyone?

[Lerch]

There is a bit of confusion of terms here. Exempt means that the asset (like your right to receive payment under this contract) is a part of the bankruptcy estate, and pursuant to state or federal law, the debtor is permitted to retain the asset. The trustee can't take the asset and distribute it to creditors because the law says it is something the debtor gets to keep.

The estate is all of the debtor's assets that the trustee controls. Most everything the debtor owns becomes part of the BK estate. Some things, by operation of law are not a part of the estate. Not being part of the estate means that it is not under the jurisdiction or control of the Panel Trustee that will administer your bankruptcy case. She can't take the asset away becasue its not hers to take.

Ask your lawyer to explain the difference. And if he or she can't explain it in a way you can understand, find another lawyer.

Lerch

PS I'm not your lawyer and my statements should not be confused for legal advice.

[doomed]

I'm still confused. I'll ask my lawyer tomorrow but just thought someone here would know in the meantime.

[HHM]

Actually, exempt and asset are the rights word here, just not sure exemptions apply.

I assume you are the service provider and the other party is the client. This analysis is actually fairly easy.

1. If you have already performed the service prior to filing BK, but haven't been paid at the time of filing, the money belongs to the BK estate. You performing the service is what gives you the "right" to receive payment. That "right" passes to the BK estate (as an asset) upon filing BK. In general, this scenario can be mitigated by exemptions, many states allow you to keep 75% of wages earned prior to filing BK, or there may be a wild card exemption.

2. If you have performed the service and HAVE BEEN paid, then the issue is more of an income issue for the means test. That income WILL count in your 6 month average income calculation and if that is enough to push you over, you better hope you have a creative lawyer.

[doomed]

Thanks HHM. I'm "performing" the service at this time and will continue to until about 10 months from now, and will receive the money on a monthly basis starting Sept 1. It's not a contract I can back out of AT ALL unless, well, I'm dead and I cannot physically hand this contract over to someone else, which is why its considered a personal services contract.

[HHM]

Well, unless you are physically chained to someone (slavery) there is no such thing as a personal service contract that cannot be cancelled

In any event, based on what you described, this sounds more like an income issue. Since this is an ongoing service, it really is no different than having a job. So, the contract, as an asset, is not as important, it will be how this contract affects your disposable income and ability to qualify for chapter 7.

[doomed]

HHM, I pm'd you.