As I have said before, “even the simple Chapter 7 bankruptcy can turn out to be not so simple.” For example, you are a married couple wanting to file bankruptcy with a below median income, partly consisting of social security income.  You have the normal assets: house, car, clothes, wedding rings, but no “toys” like boats or RVs. Should be easy, right? Should be, but things can get complicated quick. Let’s say that you, the husband, are an insurance agent, and your income is derived from insurance contracts and commissions off of those contracts. And that right there is where things get ugly.

The issue in this “simple” bankruptcy is that when a Chapter 7 is filed, a bankruptcy estate is automatically created, which includes all of your legal and equitable interests in property 11 U.S.C Sec. 541(a)(1). This includes your rights under a contract created prior to filing bankruptcy and any contingent interests. So, if you’re an insurance agent that has already existing contracts, your Chapter 7 trustee will be able to step right into your shoes and take over those contract rights, including the right to receive commissions.

So, what do you do? Are you out of luck? Not quite. However, a lot depends on what jurisdiction you have filed in and also the demeanor and mindset of the trustee assigned to your case. First, your lawyer should take a look at whether any of the commissions are due to your post-petition work and services rendered.  This may be difficult if it is a renewal commission for which little effort is expended in getting clients to renew. Earnings from work started and completed post-filing are not property of the bankruptcy estate. Additionally, the Arizona bankruptcy court has determined that commissions are the same as other earnings and are also subject to the “75% of earned, but unpaid wage” exemption.  This means that if you have completed work prior to filing bankruptcy, but will not get paid until after filing, you can protect up to 75% of those earnings. If you’re the insurance agent in this example, you can attempt to protect 75% of the commissions earned from pre-filing work as your unpaid wage.

I think the lesson of this story is that bankruptcy can be a complicated area of law with many unforeseen issues and surprises. Because of that, anyone who is considering filing on their own should maybe think again or, at the very least, consult with an experienced attorney to determine if the case is more complex than it looks.