Protecting Your Wages in Bankruptcy in Minnesota | LifeBack Law Firm

Posted by Tim Tonga on November 17, 2021 at 8:00 AM
Tim Tonga

What Happens to My Co-signor When I File Bankruptcy MNA common concern for many people considering filing for bankruptcy is whether they will be able to protect their wages after they file. The Federal Bankruptcy Code is very generous about allowing debtors to keep the money that they earn from work to provide for their basic needed monthly bills and expenses.

Debtors who earn less than the median State income, based on their household size, qualify for filing a chapter 7 bankruptcy. This is because these debtors earn too little money to have sufficient disposable income (money left over after paying bills and expenses) to afford to be able to pay back their creditors.

On the other hand, debtors who earn over the State median income are required to repay their creditors in a chapter 13 bankruptcy case because they do have sufficient disposable income left over to make monthly payments towards their debts.

Chapter 7 Versus Chapter 13

While debtors in a chapter 13 case must contribute all of their disposable income to their monthly repayment plan, debtors in a chapter 7 bankruptcy case are allowed to keep all of the disposable income they earn after filing for bankruptcy. However, this not necessarily the case for wages of which the debtors have earned but have not yet received from their employer.

Typically, most employers owe their employees a week, or two, worth of wages at the time they file their bankruptcy case. Wages that debtors earned but not yet received as of the date of filing their bankruptcy case are considered to be part of the “bankruptcy estate,” meaning they are subject to being taken by the chapter 7 trustee to pay to creditors, unless they are “exempt.” Exempt property is property that is protected, by law, from being taken to pay creditors.

Choosing Your Exemptions in Minnesota

Debtors who file for bankruptcy in Minnesota can choose to either protect their property through exemptions provided by the Bankruptcy Code or with exemptions provided by Minnesota State Statutes and other applicable Federal Law. The Bankruptcy Code does not specifically provide that these earned, but unpaid wages, are exempt.

When a Debtor's Unpaid Wages Are Exempt

In the large majority of these cases, most, if not all, of the debtor’s unpaid wages are exempt. This is because the Bankruptcy Code provides a special exemption known as the “wildcard exemption” which can be used to protect any property, including unpaid wages, up to a certain amount.

The amount of the wildcard exemption available to protect property, such as unpaid wages, which would otherwise be nonexempt, and unprotected from creditors, is dependent on the amount of equity in the debtor’s homestead (the amount by which the value of their home exceeds the debts against it (i.e. the mortgage).

The Bankruptcy Code Versus Minnesota State Law

Exactly how this works can be a bit complicated and is best explained in more detail in other blogs or, in-person, with a bankruptcy attorney. Alternatively, if the debtor uses Minnesota State law to exempt their property, they may exempt and protect up to 75% of their earned but unpaid wages at the time of filing.

Labor, Skill, Material or Machinery

Furthermore, Minnesota law also allows workers who receive payments for the “labor, skill, material, or machinery” they use in improving real estate to exempt and keep 100% of the payments they receive for such work. The bottom line is that, in most cases, regardless of which exemptions the debtor chooses, the debtor will very likely be able to keep most, if not all, of their earned but unpaid wages.

CALL NOW FOR A FREE STRATEGY SESSION FROM A MN BANKRUPTCY LAWYER AT LIFEBACK LAW FIRM

This is intended to be a general overview of how wages are treated in bankruptcy and is not designed to be a comprehensive discussion of the topic. A person considering filing for bankruptcy should seek the advice of an experienced bankruptcy attorney to determine how best to protect their property in their bankruptcy case. See us at LifeBackLaw.com!

 

Topics: bankruptcy in minnesota, wages

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