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Are Your Wages Exempt From Bankruptcy?

A chapter 7 bankruptcy filing can mean that some of your property falls into the hands of the bankruptcy trustee. Once you file, your home, car, money in bank accounts, and more become vulnerable to seizure. Items taken from filers can be sold, and the money used to pay back the creditors. Surprisingly, the money you earn by working (before you file) is considered part of your personal property. Read to find out more about how to protect your wages from seizure during a chapter 7 bankruptcy.

How Exemptions Work

Each bankruptcy filer can use exemptions to reduce the chances of losing property, and wages are no exemption. Declaring bankruptcy is not just a means of shedding debt, but can mean the forfeiture of property, and in fact, a chapter 7 bankruptcy is also known as "the liquidation" bankruptcy. While all of your property is theoretically at risk, exemptions allow most filers to avoid losing some property. For example, a certain dollar amount can be deducted from your wages earned.

Wage Exemptions

Once you file for bankruptcy, any money you earn is safe from seizure. Money that you earned, but have not yet been paid, however, may come under the heading of bankruptcy property. Exemptions work a bit differently in every state. In some states, wages are addressed separately with an exemption and in some places, wages are lumped in with your other personal property or addressed with a wildcard exemption. Most of the time, the money you earn will be entirely exempt. If your pay is a larger sum, you may need to take extra steps to protect it by proving that the wages are needed to pay necessary expenses.

Necessary Expenses

When you are owed a large amount of money from work performed before you filed for bankruptcy, and the amount is too high to qualify for an exemption, you may be able to explain why you need the money. For example, if you are self-employed and get paid on an irregular basis, you might be expecting a large sum for payment from a project. To keep those wages, you must be ready to explain why the money is needed to pay for your living expenses. The bankruptcy courts won't leave you destitute, but you may need to draw up a budget showing how the money will be used to appease the trustee.

To find out more about how a bankruptcy might affect your wages, speak to a bankruptcy attorney such as Robert Bruce Jones Attorney.