When you file for Chapter 7 bankruptcy, you will create a bankruptcy estate that includes everything you own and everything you are entitled to receive as of the date of your filing. But just because you have filed for Chapter 7 bankruptcy does not mean that your income becomes property of the bankruptcy estate. You can still receive money after you file.
The answer to this question depends on multiple factors. These include:
We will consider each of these factors in this blog post.
If you have received money after filing for Chapter 7 bankruptcy, call us at (480) 739-2448 or use our online contact form to speak with one of our experienced bankruptcy attorneys.
Post-bankruptcy filing, you might receive money from a variety of sources. Examples include:
Your Chapter 7 bankruptcy filing can affect each of these sources of money differently. Here are some general rules.
Ordinarily, the income you receive after your bankruptcy petition filing date is yours. It does not become property of the bankruptcy estate. But if any new income you receive after your filing was earned before you filed, then the bankruptcy trustee can seek to include those funds as estate property.
If your income increase was expected before filing, it may raise questions about the accuracy of your bankruptcy filing. Trustees may review your case if your income increases significantly after filing to ensure there was no misrepresentation in your filing.
Failure to disclose an increase in income during Chapter 7 bankruptcy can result in severe legal consequences, including bankruptcy fraud charges. Therefore, debtors must report any increase in income to the court and creditors during Chapter 7 bankruptcy proceedings.
Tax refunds that are connected to income you earned before your bankruptcy filing may be subject to the trustee claiming them as part of the bankruptcy estate. But if your filing date falls in the middle of the tax year, the amount that might become part of the estate is subject to proration.
Examples of government checks you may receive include rebates, tax credits, or forms of government relief. Whether these become part of the bankruptcy estate depends on the specific facts surrounding the kind of funds you receive.
These sources of money are subject to the “180-day rule.” Meaning, if you become entitled to receive them within 180 days of your bankruptcy filing, then they are included in the bankruptcy estate under 11 U.S.C. § 541(a)(5), subject to any available Arizona exemptions.
If you receive an amount of money that was not connected to an earning activity, like a gift or winning money at the casino, then whether these funds become estate assets depends partly on when you received them. The general rule is that if you received these monies before you file bankruptcy, they become part of the estate. Any such funds you receive after you file are outside the estate.
This general rule is not necessarily ironclad. For example, if a family member sends you a large gift of money after you file, it may raise the trustee’s suspicions about the real intent of the funds transfer (whether it was intended to circumvent the bankruptcy case).
Whether judgment awards or settlement payouts from civil lawsuits in which you were a plaintiff become estate assets depends at least in part on when the incident that led to the lawsuit happened.
Again, it does not matter when you file the lawsuit; the important date is when the underlying event that gave rise to your legal claim took place.
Also, sometimes part of your judgment award or settlement may be excluded from the estate, like economic damages you receive to cover medical expenses, while other funds can become part of the estate. Your bankruptcy lawyer can help you know which part you can count on keeping.
As we have seen above, timing is an important factor in deciding whether the money you receive or become entitled to ends up in the bankruptcy estate. One key consideration is the “180-Day Rule.”
The essence of the 180-Day Rule is that if you become entitled to any of the following within 180 days after your bankruptcy filing, they will usually become part of the bankruptcy estate even if you have not yet received the funds:
If, however, you gain the right to these monies after more than 180 days have passed from your filing date, they do not become estate assets.
Monies that are excluded from the 180-Day Rule include:
Here are some situations in which the 180-Day Rule may or may not apply:
Bankruptcy exemptions can protect money and property from becoming part of the bankruptcy estate, even if they would otherwise be included under the 180-Day Rule.
Arizona is what bankruptcy practice calls an “opt-out state.” What this means is that although in many states, federal bankruptcy code exemptions may apply to a Chapter 7 bankruptcy case, in Arizona, you must use the exemptions provided by state law.
Here are some of the bankruptcy exemptions under Arizona state law that may help you keep money and assets from becoming part of your bankruptcy estate.
Arizona Revised Statutes (ARS) Sections 33-1101 through 33-1105 cover homesteads and the homestead exemption. This exemption protects your equity in your primary residence, up to $400,000. Although the homestead exemption does not normally exempt cash, if the source of the money is a forced sale of your primary residence and you reinvest the proceeds of that sale within a certain period of time, the exemption will apply to the sale proceeds.
Under ARS 33-1125(8), you can exempt up to $16,000 of equity in one vehicle, or up to $26,700 if you or a dependent of yours has a physical disability. Equity in this context means the fair market value of the vehicle, minus any liens.
If you and your spouse are both filing for bankruptcy, the $16,000 exemption doubles to $32,000. This is $16,000 for you to protect your car and $16,000 to protect your spouse’s. If there is only one car between you and your spouse, then the amount is $32,000 for one car.
In addition to your personal vehicle, you can exercise money-related exemptions for the following:
Post‑petition wages are excluded from the bankruptcy estate under 11 U.S.C. 541(a)(6). ARS 33‑1131 governs wage garnishment protections, which may still be relevant outside the bankruptcy estate context.
Under Arizona and federal law, if you are receiving a qualified retirement plan distribution, such as a 401(k) or IRA, it may be exempt from the bankruptcy estate if it is traceable to an exempt account and has not been commingled with non-exempt funds.
Under ARS 14-10502 and 11 U.S.C. 541(c)(2), if you are the beneficiary of a valid spendthrift trust, then money held in the trust is excluded from the bankruptcy estate. But once the trust distributes any money to you, that distribution may be subject to becoming an estate asset unless an exemption applies to it.
Although the 180-Day Rule may seem simple on the surface, receiving money after filing for bankruptcy can present complex legal considerations that have a significant effect on whether you can keep it outside of the bankruptcy estate.
If you improperly withhold money from the bankruptcy estate, it could lead to negative consequences, including accusations of concealment by the bankruptcy trustee, the inability to receive a discharge in bankruptcy, or even dismissal of your case by the bankruptcy court.
Here are some pointers that can help you better understand how to handle funds you receive after your bankruptcy filing date:
When you call Stone Rose Law at (480) 739-2448, you will be able to speak with an experienced bankruptcy attorney about any bankruptcy-related financial situation, including Chapter 7 bankruptcy, Chapter 13 bankruptcy, and how you can legally keep as much of your post-filing income as you can from being rolled into the bankruptcy estate.
Call us to set up a free consultation, or use our online contact form.
