Wages During Bankruptcy

  • By Jillian Taylor-Mancusi

What will happen to my wages during bankruptcy? This is a question I am asked frequently.

The simple answer is that once a bankruptcy has been filed an automatic Stay of Proceedings goes into place. This means that no one can sue you, garnish your wages or take out any other collection practice against you. All current collection activities will stop.

In other words because you have filed for bankruptcy, you are now protected from your creditors. You will continue to receive your wages. But in exchange for that protection, you will need to agree to work with a Trustee to go through the personal bankruptcy process.

What if I get a raise while in bankruptcy? Will I have to pay more?

You may have to pay more. There is a directive in the bankruptcy act called Directive 11R2. It dictates how much you are obligated to pay each month. The factors that determine the amount are your income and your household size. If a raise pushes you over the limit that applies to you, it is quite possible that you may have to increase your payments.

What happens if my income decreases? Do I still have to pay the same amount?

Again, this depends on the directive. If your income goes below the guideline amount for your situation, the surplus income payments you are required to make will go down.

You are obliged to pay 50% of your surplus income. However, if you experience a reduction in income and you fall below the minimum amount, you no longer have to pay surplus income. The amount of your payments also depends on your Trustee. Most Trustees have a minimum payment requirement. For example in our firm, the minimum payment will be $150.00 per month.

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If I earn extra money from a side job, do I have to report it?

Yes, you do. When you are in a bankruptcy, every month you are responsible for filling out an Income and Expense report. This lists all monies coming in and where it is being spent.

This report ensures that you are making the appropriate payments back to your creditors. It also sensitizes you to where your money is coming from and where it is going, helping you develop an awareness of personal budgeting.

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