If I file bankruptcy what happens to my postpetion income? That issue was faced by a debtor doctor who filed a bankruptcy petition some time ago, but continued to practice medicine from consulting rooms she owned prior to the petition. She also continued to use equipment and supplies purchased before her bankruptcy. Is her postpetition income property of the bankruptcy estate? (Answer to follow)
The Bankruptcy Code
The Bankruptcy Code states that a petition for bankruptcy creates a new legal entity separate and apart from the debtor's prepetition estate. The debtor`s property prior to the date of bankruptcy goes into the bankruptcy estate. In due course, all the prepetition property is liquidated and its proceeds distributed to creditors. At the same time as the bankruptcy estate is created, the individual Ch. 7 debtor begins to accumulate a new estate. This new estate consists of earnings and property acquired after the filing as well as property that has been released to the debtor from the estate as exempt or abandoned by the trustee has having no economic value. These postpetition assets of the debtor are the basis of his or her fresh start. Petition creditors cannot reach them because they are stayed from doing so pending the debtor’s discharge, and are thereafter permanently enjoined from collecting prepetition debts.
So What About the Postpetition Income?
Where the debtor is in the business of rendering personal services (eg., as a doctor, lawyer, or other professional), the doctor's earnings must be apportioned between the bankruptcy estate and the new estate. The doctor is not entitled to all the postpetition income derived from the business. The part attributable to the debtor’s own services does not fall into the bankruptcy estate, but the remainder deriving from the capital, assets, goodwill, or employees’ labor is property of the estate.
For more bankruptcy information read: Bankruptcy: Postpetition Income Part II, Bankruptcy: Automatic Stay, and What is Bankruptcy, Bankruptcy: Fresh Start, Bankruptcy: Student Loans, Bankruptcy: Means Test, Bankruptcy: Income Eligibility, Bankruptcy: New Asset Evaluation