Bankruptcy Provisions

April 13, 2006

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The wage exemption available for your asset exemption plan can be affected by the type of bankruptcy filing you choose.

In a Chapter 7 bankruptcy proceeding, generally only assets owned at the start of the case are included in the bankruptcy estate.

Thus, the debtor retains wages earned during the proceeding, in their entirety. This is one of the many reasons that debtors typically file in Chapter 7. Wages earned prior to the proceeding, but unpaid, can be exempted only if the state's exemptions are claimed.

In a Chapter 13 proceeding, the debtor commits all disposable income, after accounting for reasonable living expenses, to paying off creditors over a three- or five-year period. The difference between the treatment of wages earned during the proceeding will usually, but not always, make Chapter 7 a better choice than Chapter 13.