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Thursday, October 8, 2015

Consumer Bankruptcy for the Commissions-Based Employee

How will the Bankruptcy Court calculate my monthly income if I am 100 percent commissions-based?

Working solely for commission has its highs and lows. On one hand, employees may be able to make significantly lucrative sales deals with clients, resulting in major lump-sum cash payments each month. On the other, the sales sector can be unpredictable, leaving some of the best sales associates without significant income for weeks or months on end. For an employee whose salary is based 100 percent on commissions, this can be extremely difficult to manage – particularly as monthly bills and obligations continue to loom.

For the commissions-based employee who is struggling to make ends meet, consumer bankruptcy may be a viable option to gain financial traction. However, there are some nuances to the practice that may distinguish the commissions-based bankruptcy debtor from a traditional wage earner.

In one pivotal case, a debtor appealed a decision entered by the U.S. Bankruptcy court holding that a commission earned eight months after filing should be considered part of the bankruptcy estate – and therefore subject to disbursement to creditors. In the court’s opinion, it pointed to the language of the Bankruptcy Code that entitles the trustee to encumber the debtor’s legal and contractual interests as part of his assets – and concluded that a pending commission sale would be included in that mandate. In objection, the debtor asserted that, at the precise time of filing, the commission was not in his possession and therefore not a countable asset. The appeals court disagreed, and held that the imminent commission had “value” at the time of the filing, even if not yet realized – and should have been counted in the estate. See, In re Ryerson, 739 F.2d 1423 (1984).

In another similar case, the court held in the opposite after concluding that the debtor still had remaining “post-petition services” to render before collecting the entire commission. In other words, the debtor’s legal interest in the sum had not yet vested at the time of filing as she had not yet fulfilled the terms of the contract in their entirety. Accordingly, the commission was not counted as part of the bankruptcy estate. See, In re Wu, 173 BR 411 (1994).

If you are considering a consumer bankruptcy in Ohio and have questions about how the court will treat your commissions-based earnings, please contact a competent Miami Valley Bankruptcy today at 937.262.4789.


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Miami Valley Bankruptcy, Brian Lusardi, Esq., assists clients with Bankruptcy matters including but not limited to: Common Myths, Cost of Bankruptcy, Chapter 7 Bankruptcy, Chapter 13 Bankruptcy, The New Bankruptcy Law and Personal Bankruptcy in Xenia, Ohio, and the cities of: Wilberforce, Alpha, Spring Valley, Dayton, Bellbrook, Yellow Springs, Cedarville, Fairborn and Clifton; and the counties of Greene and Montgomery.



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