How do you account for income you are due in the future but have not yet received in a bankruptcy petition? This is a confusing and vague area of law, made more vague by the changes to the Bankruptcy Code in 2005. I can almost guarantee that if you discuss with 10 different bankruptcy attorneys this issue, you will receive 10 different answers. I do not believe there is a 100% "right" answer; the most important thing (as always) is to be completely honest with the trustee and the court. First off, a few definitions: Income: any money you receive for any services or products. This includes employment wages, bonuses and tips, rental income, Social Security or other public benefits, accounts receivable, and commissions. Bonus: any income you receive as a result of your employment over the salary or hourly you are guaranteed in your contract. Some bonuses are "guaranteed" if your company posts a profit; you are, essentially, contractually obliged to receive a percentage of the company's profits. Other bonuses are not guaranteed and are provided to you based on the whims of the company's management; these bonuses are also probably related to the company's profitability but you cannot know with certainty that you will receive this bonus until the management informs you that you will. Account Receivable: this category includes commissions (money you are promised to receive for past sales and/or services), guaranteed bonuses as I described above or bonuses you have been noticed you will be receiving from management, deferred wages, structured settlement payments and any other money you are contractually obliged to or expected to receive in the future. Now, these definitions are important in a few areas of a Chapter 7 Liquidation: 1) to figure out whether you qualify for Chapter 7 under the Means Test; and 2) declaring your assets and income in the petition's schedules. THE MEANS TEST The Chapter 7 Means Test is concerned mainly with one thing: your income for the past six months. There are two ways to interpret income. The majority of courts (which includes the Los Angeles-based Central District of California) ask how much income have you RECEIVED in the past six months? The minority asks how much income have you EARNED in the past six months? The majority view is much easier to work with. You do not have to worry about deferred wages or commissions that may take months to actually be deposited in your account. You just count up how much money entered your bank accounts in the past six calendar months. This also allows for some fancy footwork and timing. Say you are expecting a rather large commission to be posted to your bank account next week which will definitely push you into a Chapter 13 or 11 filing; just make sure you file before the month is up and that income will not be included in the Chapter 7 means test calculation. Of course, the disadvantage to the majority view is that the debtor may be forced to wait for months to file to make sure a large commission or bonus is more than six months in the past. For example, say you received a $30,000 bonus on December 15 Your regular income is high enough such that you barely qualify for Chapter 7 without the bonus. Well, that bonus is going to essentially add $5,000 to your monthly income in the means test (equal to a $60,000 yearly increase in income). As a result, you will have to wait until July to file. Under the minority view, the bonus is spread equally across the 12 months of the year you earned it. DECLARING YOUR ASSETS AND INCOME Alright, you decided to file in Chapter 7. But December is a couple months away and you may receive a bonus. Or you have a lot in commission money coming your way relatively soon. How do you declare these things in your petition. If the money is definitely coming your way at any point in the future, it is an account receivable that must be declared in your bankruptcy petition. You must also attempt to exempt it under your state's asset exemptions or the federal supplemental exemptions. If it is work-related income, then the federal supplemental exemptions allow you to exempt at least 75% of it as it will most likely be considered a "wage" under the Internal Revenue Code. Any money you cannot exempt, your right to receive the money is liable to be seized and liquidated by the bankruptcy trustee. A bonus is a bit tougher. If it is a contractually-guaranteed bonus, then it is also an account receivable. Even if you do not know the value of the bonus, you must declare it (indicate an unknown value). However, if you file on July 1, then only the bonus you "earned" for half the year has to be declared since the bankruptcy estate only includes your assets on the day you filed for bankruptcy. An added wrinkle to this is if you are only guaranteed the bonus if you are working at the company when bonuses are distributed; if you get fired the day after you file bankruptcy, then how can that bonus be considered an asset on the day you filed for bankruptcy? If it is a bonus that is performance-based, then it will only be an account receivable once you know for certain you are receiving a bonus. Again, you should be able to exempt at least 75% of your bonus money under the federal supplemental exemptions since it is considered a "wage". Regardless of whether or not you declare your bonus as an account receivable, it is best to include the bonus on your Income Schedule under the line-item where it asks if you expect any changes in income in the next four months. The bankruptcy trustee will see that and ask why it is not included in your assets declaration. Be honest: simply say if you lost your job the day after you filed, you would not be due any bonus so you did not consider it an asset. If the trustee agrees, then everything is fine. If the trustee does not agree, tell him/her you did not intend to hide anything and that you will file amendments to your schedules as soon as possible. If you have an attorney, s/he should take full responsibility for the decision on how to declare the bonus. This is potentially a tricky situation. Again, the best thing is to be honest with the bankruptcy trustee and the court. Do not be disingenuous or sneaky; they have heard it all before and will quickly see through you.