30 Aug Working Overtime, or Having a Part-time Job: Can the Debtor Quit Before Filing Bankruptcy?
Some persons considering filing a chapter 7 or chapter 13 bankruptcy case might be concerned about their level of income being inflated due to working overtime hours, or having a part-time job in addition to their main full-time job. The concern is that the heightened level of income might render the debtor ineligible for chapter 7 due to the means test’s income rules, or that the debtor will be compelled to continue working excessive hours in order to maintain a high monthly chapter 13 payment.
Quitting the overtime, or quitting the part-time job, might seem like a reasonable option, but would the bankruptcy trustee view such an action as a bad faith effort to reduce income just before filing bankruptcy? If so, then the debtor is caught in Catch 22: the debtor has to either continue working an unreasonable amount of hours to the detriment of his or her health and welfare, or the debtor risks derailing the bankruptcy if the trustee later claims the debtor acted in bad faith by quitting working the extra hours.
The good news is that most bankruptcy lawyers have concluded that a debtor is not required to continue working overtime, or to continue working an additional part-time job, if good reasons exist for the debtor to stop doing so. In other words, if the debtor desires in good faith to simply return to a typical level of employment activity for reasons of health or quality of living, most bankruptcy lawyers would say the debtor can do so without fear of having such an action held against the debtor by the trustee.
If the debtor decides after consulting with an attorney to quit working additional hours, it’s best for this to be done prior to filing the bankruptcy case. This will allow the bankruptcy attorney to report the debtor’s new (and reduced) income figures in the bankruptcy papers, making administration of the case easier for all concerned. In some cases, it may even be necessary to wait for six months after quitting the extra hours, due to the means test’s income reporting rules. Your lawyer can tell you if waiting to file the bankruptcy is needed in your case.
Any decision to quit working additional hours prior to filing bankruptcy is sensitive, and serious, and it can have important consequences for the debtor. Such a decision should only be made after consulting with an experienced bankruptcy attorney, and after considering carefully the impact such a decision will have on the debtor’s budget, and how such an action might be viewed later by the trustee or the bankruptcy court.
Bankruptcy Law Network (BLN)
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