New York bankruptcy debtors are almost always industrious people, even when they happen to be unemployed. Sometimes, however, they are so industrious that their extra working hours, whether overtime or extra part-time hours, might interfere with their potential bankruptcies. If they file in chapter 7, then they may risk facing (and failing) the means test. Likewise, their extra incomes might affect their repayment plans in chapter 13, locking them into jobs they can’t maintain for the three to five years that a plan requires.
It’s an odd situation: making too much money for bankruptcy to be effective, but not enough to manage one’s debts. It does happen, though, so here’s what debtors in these circumstances should consider.
The reason debtors should be concerned is that reducing working hours before bankruptcy might be seen by a trustee as a bad faith effort to reduce income. Obviously context matters. Debtors who don’t want to keep working the extra hours should be able to produce a good faith reason not to, and it’s often related to their health and wellbeing. For most debtors, then, reducing the hours before bankruptcy is perfectly acceptable. However, it can become a problem for debtors whose extra work is part of their jobs, i.e. it’s cyclical.
For chapter 7 debtors, the issue is whether it’s better to delay filing for sixth months after reducing their hours or to reduce their hours and file anyway. I addressed this situation in a post titled, “Timing the Means Test.” Again, the decision is context dependent, but for most debtors, it won’t be a problem because it’s pretty unlikely that their overtime or additional part-time hours for the previous six months will put them over the means test threshold.
Chapter 13 debtors will need to make a similar decision because the “disposable income” that forms the backbone of their repayment plans is simply their six-month “current monthly income.” In other words, they need to make the same analysis as chapter 7 debtors. It’s possible to argue that the extra income from the elevated hours will no longer be available in the future, although it’s still usually better to reduce the hours before filing bankruptcy. (Click to read more about “disposable monthly income” in chapter 13.)
Employment around bankruptcy can be a tricky issue. If you are facing financial difficulties, then talking to an experienced New York bankruptcy attorney can help you decide how to balance work against bankruptcy obligations.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
