benefits of chapter 7

Can I Keep My Bonus In Bankruptcy?

If you are paid a commission or bonus through your employer, a key question when filing bankruptcy is whether you can keep your bonus when you file a bankruptcy. If certain factors are met, the answer is yes, you can keep your bonus in bankruptcy. Our firm litigated a case in the Western District of North Carolina in 2017 which addressed that exact issue. You can find a link to the story about the case published here on Bloomberg Law.

Is My Bonus Part Of The Bankruptcy Estate?

Whether a bonus is part of the bankruptcy estate, and potentially at risk of being paid over to the Trustee, depends. If the bonus has already been received and is sitting in your account, then yes, it will need to be addressed as an asset of the estate. If the bonus is earned, but not yet received, the answer is the same. However, if a bonus is earned but the payment of the bonus and the amount of the bonus remain in the discretion of the employer, your bonus may not be an asset of the bankruptcy estate.

The Timing Of Your Bonus Is Important

The snapshot for determining the answer to numerous questions regarding your bonus is the day of filing. If, on the day of filing, your employer still retains discretion as to whether to pay the bonus, then you have no vested rights in the bonus. For the purpose of bankruptcy, this is merely an expectation of a bonus. Case law supports the conclusion that a mere expectancy or hope of a bonus is not an asset. Therefore, the bonus would not be part of the bankruptcy estate. While your employer may in fact end up paying the bonus, if at the time of filing you had no legal right to it, then it should not be included in the bankruptcy estate.

What Would Change This Answer?

If prior to the day of filing, your employer communicated to you that you have earned a bonus and the bonus will in fact be paid at a later date, this would most likely dictate the bonus is an asset of the estate. If the bonus was small enough, you could use one of your bankruptcy exemptions to protect the bonus. Depending upon whether you could prove when the bonus was earned, you may also be able to protect some or all of the bonus under the earned income exemption.

How Is A Bonus Different From A Commission?

In this context, the imagined bonus is one which is at the employer’s discretion. A commission is typically calculated and generated upon a mathematical equation, and upon a certain event—conclusion of a sale, signing of a contract, etc. Presumably, the same questions would arise concerning a commission. If the commission was earned at the time of filing your bankruptcy, it would be an asset of the bankruptcy estate, whether you had been paid the commission yet or not.

Speak With A Charlotte Bankruptcy Attorney

If you are considering filing a bankruptcy, speak with a Charlotte bankruptcy attorney today. You can call us at 704.749.7747 or click HERE to request a call. We know you have choices. We hope you choose to Recover With Us.