Do you get to hold onto your paychecks during the Chapter 7 process? The answer rests entirely on the timing of your case. The automatic stay in bankruptcy does stop wage garnishment, but if you have pending paychecks from before you filed for bankruptcy, this income could still be at risk.

Here is why: your entire financial situation, including income you have earned but not yet received, is wrapped up in the bankruptcy estate. In Chapter 7 bankruptcy, this estate is subject to being handed over to creditors to pay off debts. While this includes property getting liquidated (sold) so that the profits could be passed onto the creditors, your wages might get sucked into repayment as well.

However, bankruptcy exemptions can protect many assets, such as your home or your car, and your income could get exempted too, depending on the exemptions available to you. There are also types of income that cannot be used by the trustee to satisfy creditors.

For instance, a trustee might let you hold onto your regular income, as you need these for the daily costs of living. If your income comes in a regular check, such as in weekly or bi-weekly installments, then your wages might be safe, even if they do not have an official exemption.

Lump sum payments could be handled differently, however. This is the case for contractors, for instance, who get one large payment upon fulfilling a contract. If you have not received your lump sum payment when you filed for bankruptcy, but you already earned it, that payment could be used to pay off creditors. Still, you may have the option of claiming an exemption for your income. Or you might be able to successfully argue that you need your entire income for living costs, and the trustee might leave your income untouched so that you can keep it.

Learn how you can move forward to a stronger financial future when you call a bankruptcy lawyer today!