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How Will My Bonus Be Treated in a Chapter 13 Bankruptcy?

Man looking at the envelopes

Question: At work I’m paid a salary and I get a bonus every year. That bonus is based on a number of factors like personal sales goals and overall company performance. I sell software to educational buyers like middle schools, high schools, colleges and universities. My company is based in Dunwoody, near the Perimeter Mall.

Now I have to file bankruptcy because an investment that I made hasn’t worked out and I owe a lot of money that I don’t think I can ever repay. I make good money in software, but I opened a restaurant and bar with a partner and we just aren’t making any money. We’re actually losing a lot of money each and every month and the debt has built up.

I understand that with my income, which is over $200,000 per year, I’ll probably have to file a chapter 13 bankruptcy. I know filing is a great idea because my mom and dad filed and it got them out of debt after my father got sued for medical malpractice and he didn’t have insurance. So bankruptcy helped save everything from their house to their cars.

I received my bonus in February and want to know how that might affect my bankruptcy and I’d also like to know what a “means test” is?

R.N. in Sandy Springs, GA

Answer: A means test is a form that the court uses in chapter 13 cases to determine the required monthly payment amount. In a chapter 13, a payment is made to the bankruptcy trustee every month. That form utilizes the income received during the 6 months preceding the filing of the petition.

In your case, by waiting until September to file, your 6 month look-back period will be March through August, thus excluding the bonus that was received in February.

Just because the bonus was not received during that 6 month time period does not mean that the trustee cannot require that it be paid into the plan. However, if we were to file while the bonus was still part of that 6 month look-back period we would not be able to even propose a chapter 13 plan that does not include it being paid each year.

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