LEGAL GUIDE
Written by attorney Mohammed Omar Badwan | Dec 15, 2010

85% Of Accounts Receivable For Services Rendered Exempt From Bankruptcy Estate

There has been a tremendous amount of disagreement among the Courts as to whether unpaid wages for services rendered are part of a consumer's bankruptcy estate. Judge Wedoff out of the Northern District of Illinois has ruled that only 15% of the wages are subject to the estate. The issue usually arises when professional service providers (doctors, lawyers, psychologists, etc) file bankruptcy. A general rule of the Bankruptcy Code is that all non-exempt property becomes part of the estate and is subject to liquidation. Many Courts have ruled that "accounts receivables" for services rendered are indeed part of the estate. However, in In re John Edward Mayer, Judge Wedoff has ruled that 85% of accounts receivables for services rendered are exempt from the estate. Judge Wedoff found that the Illinois rule limiting wage garnishment to 15% of a consumer's wages imposed an applicable exemption under the Bankruptcy Code. This fair and rational ruling gives service providers the comfort of knowing that they can continue to operate their respective businesses even if they decide to obtain relief under the bankruptcy code.

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