It’s a question we hear all the time:
“I’m thinking about filing bankruptcy, but I might be getting a bonus. What happens if I receive it?”
Or:
“I’m already in bankruptcy and just found out I’m getting a work bonus. Do I get to keep it?”
The short answer is: it depends on timing, the type of bankruptcy you filed, and how the court views your disposable income.
Let’s break it down in plain English.
1. Timing Matters — A Lot
When it comes to bankruptcy, timing is everything.
The court looks at your financial situation during specific windows of time. Whether you receive a bonus:
- Before you file
- After you file but before discharge
- During a Chapter 13 repayment plan
… can completely change how it’s treated.
That’s why you should always speak to a bankruptcy attorney before filing if you expect:
- A work bonus
- Commission payout
- Tax refund
- Inheritance
- Settlement money
A few weeks’ difference in timing can make a major difference in outcome.
2. What Happens in Chapter 7?
Chapter 7 is often called “liquidation bankruptcy.” It’s designed to wipe out unsecured debts like:
- Credit cards
- Personal loans
- Medical bills
It usually lasts about 3–4 months.
If You Receive a Bonus Before Filing
If the bonus is received before filing, it becomes part of your financial picture.
The trustee may look at:
- Whether the money is still in your bank account
- Whether exemptions protect it
- Whether it changes your eligibility under the means test
If you already spent it on necessary living expenses, that may not be an issue — but transparency is critical.
If You Receive a Bonus After Filing but Before Discharge
Here’s where it gets more complicated.
In Chapter 7, the bankruptcy “estate” is created on the day you file. Generally, assets you become entitled to after filing are not included — with some exceptions.
However, if:
- The bonus was earned pre-filing
- It was expected or guaranteed
- You were already entitled to it
The trustee may argue it belongs to the bankruptcy estate.
Every situation is fact-specific.
Key Takeaway for Chapter 7
If you’re expecting a bonus:
- Talk to an attorney before filing
- Don’t try to hide it
- Don’t assume it’s automatically protected
3. What Happens in Chapter 13?
Chapter 13 works very differently.
Instead of wiping out debts immediately, you enter a 3–5 year repayment plan based on your disposable income.
That’s where bonuses become especially important.
4. Disposable Income Rules in Chapter 13
In Chapter 13, your monthly plan payment is based on:
- Your income
- Your reasonable living expenses
- What’s left over (your “disposable income”)
If you receive a bonus during your Chapter 13 plan, the trustee may argue:
“That bonus is additional disposable income and should go toward creditors.”
In many cases, bonuses must be:
- Reported to the trustee
- Turned over in part or in full
- Used to increase plan payments
Some plans specifically state that a percentage of bonuses must be paid into the plan.
5. What If the Bonus Wasn’t Expected?
Life changes during a 3–5 year repayment plan.
Maybe:
- Your company had a great year.
- You received an unexpected performance award.
- You were promoted.
The court expects you to disclose increases in income.
If your income increases significantly, the trustee can:
- Request plan modification
- Increase your monthly payment
- Require bonus turnover
Failing to disclose it can jeopardize your case.
6. Why Transparency Is Critical
One of the biggest mistakes people make is thinking:
“It’s just a small bonus — I don’t need to tell anyone.”
That’s a dangerous assumption.
Bankruptcy requires full financial disclosure. Trustees review:
- Pay stubs
- Tax returns
- Employment records
- Bank statements
If they discover undisclosed income, consequences can include:
- Case dismissal
- Loss of discharge
- Allegations of fraud
The bankruptcy system is designed to give honest debtors relief. But honesty is non-negotiable.
7. Should You Delay Filing If a Bonus Is Coming?
Sometimes — but not always.
There are situations where:
- Filing before a bonus makes sense.
- Waiting until after receiving and properly spending a bonus makes sense.
- Filing immediately is still the best option because garnishments or lawsuits are pending.
This is where strategic planning matters.
A bankruptcy filing should never be rushed without evaluating:
- Income timing
- Tax refund timing
- Bonus timing
- Foreclosure or repossession deadlines
Good planning can protect more of your money.
8. What About Tax Refunds?
Bonuses and tax refunds are often treated similarly.
If you’re in Chapter 13, many trustees require:
- Annual tax returns
- Refund turnover
If you’re in Chapter 7, refunds tied to pre-filing income may be considered part of the estate.
Again — timing and exemptions matter.
9. Realistic Examples
Example 1: Chapter 7 Filing
Sarah files Chapter 7 in March. She receives a $5,000 performance bonus in April, but the bonus was earned entirely for work completed before filing.
The trustee may claim that bonus as part of the bankruptcy estate.
If she had waited to file until after receiving and lawfully spending the bonus on necessary expenses, the result may have been different.
Example 2: Chapter 13 Plan
Mark is two years into a five-year Chapter 13 plan. He receives a $10,000 year-end bonus.
His plan requires him to turn over 50% of any bonuses. He must report it and pay $5,000 into the plan.
If he fails to disclose it and the trustee finds out, his case could be dismissed.
10. The Emotional Side of This Question
Many clients feel frustrated:
“I finally get ahead and now I have to give it up?”
That’s understandable.
But bankruptcy is about balancing:
- Giving creditors fair treatment
- Giving you a financial reset
In Chapter 13, creditors are already accepting less than what they’re owed. That’s why increased income is often shared.
In Chapter 7, the focus is on what existed at the time of filing.
11. The Bottom Line
If you’re in bankruptcy — or thinking about filing — and expect a bonus:
- Do not hide it.
- Do not assume it’s protected.
- Do not guess.
Instead:
- Review your timing carefully.
- Understand how disposable income rules apply.
- Get legal advice before making decisions.
The difference between good planning and poor planning can mean thousands of dollars.
Final Thought: Bankruptcy Is a Strategy, Not a Reaction
Bankruptcy isn’t just paperwork — it’s financial strategy.
When handled properly, it can:
- Stop collections immediately
- Eliminate overwhelming debt
- Give you breathing room
- Help you rebuild
But the details — like bonuses — matter.
If you have questions about how a bonus, commission, tax refund, or other income may affect your case, it’s better to ask before you act.
Need guidance about filing bankruptcy or navigating Chapter 13?
We help consumers evaluate their options clearly, calmly, and without judgment.
A short conversation now can prevent costly mistakes later.
