How to Lose Your Sales Commissions in Bankruptcy

If you have a job where part (or all) of your income is based on commissions, and are considering bankruptcy, you need to tread carefully. Your commission might be at risk of seizure by a bankruptcy trustee. The reason for this hinges on whether you are considered an employee or an independent contractor.

Do you get a paycheck with tax deductions and a W-2 at the end of the year, or do you get commission checks and a 1099? If it is the latter, when you file bankruptcy can be very important, and delaying it can cost you money. This is because moneys due and payable to an independent contractor can be considered a receivable to a business, not a paycheck, and as such an asset.

The kicker becomes whether or not that commission has been fully earned prior to your filing the bankruptcy. Ask yourself the following questions:

• Is there anything I still need to do to earn that commission?
• Is there anything that anyone else has to do before it is payable?
• Am I just waiting on a check to be cut?

Salary earned before or after the filing of a chapter 7 bankruptcy is not touchable by a trustee. However, a business receivable is reachable as an asset to the extent that you cannot exempt it. Timing is everything, and procrastinating the filing of a bankruptcy could cost you money!

If you are considering bankruptcy, and a part or all of your income is from commissions, please contact my office for a free consultation to discuss your options.

Related Topics

• What is a bankruptcy exemption and how does it protect my possessions?
• When you should consider bankruptcy.

Looking for more information about bankruptcy? Get the answers to the most frequently asked questions by downloading my free book, Top Questions People Ask About Filing Bankruptcy in New Jersey. It will give you the answers you need all in one place. Then call me at 888-857-8418 or contact me through this site for an appointment for a free consultation to discuss your case.