Recently I had a new client ask me, “can I file bankruptcy if somebody owes me money?” Whether you can file if another person or company owes you a sum of money primarily depends upon on the amount of money that you are owed. The less money you are owed, the more likely it is that you can retain the right to collect all of the money that another person owes to you at the time of your bankruptcy filing. The more you are owed, the more of your exemptions you will have to utilize to protect the money and the less likely you will be able to keep it all.
Can I File Bankruptcy If Somebody Owes Me Money?
When you file bankruptcy, all of your assets are included in your bankruptcy estate, and you are only allowed to keep a certain amount of assets when you file. This includes money owed that another person must pay to you pursuant to written promissory notes or oral promises or any other type of obligation where another person or entity is legally required to pay you a certain sum of money. The amount of property you can keep when you file is determined by your applicable exemptions.
If somebody owes you money, whether in the form of a promissory note, or simply an oral promise to pay you, then the money owed to you is just another asset in your case and will be listed by your attorney in your petition and schedules as one of your assets. If the amount of money you are owed is within the amount permitted by your applicable exemption, then you can file bankruptcy and retain the stream of payments. If, or to the extent that, the money you are entitled to receive is more than what you are permitted to keep under your applicable exemptions, then the trustee assigned to your case will have the right to collect the excess money and distribute it to your creditors.
For example, lets say you file bankruptcy and somebody owes you $25,000, and your applicable exemptions allow you to keep $23,000. In that case, if you file bankruptcy, you will retain the right to $23,000 of the owed to you and the trustee would acquire the rights to the other $2,000 for the benefit of your creditors. Now change the facts so that the person owes you only $20,000. In that case, the amount is protected by your exemption you would retain the full amount of all of the payments. This assumes, of course, that you are using your entire exemption to protect this asset and do not need your exemptions to protect other assets.
Even in cases where the money owed to you exceeds your applicable exemptions, you can pay the trustee, in cash, an amount equal to the nonexempt amount ($2,000 in the example above) and retain the right to the entire amount you are owed. This is referred to by lawyers as “buying back your nonexempt equity” from the trustee.
There may be other ways to protect your right to collect the money, or the person or entity who owes you money may be a secured creditor, in which case the trustee may not even be able to assert rights over the nonexempt equity. If you have money owed to you, then you should consult with a San Diego bankruptcy attorney to discuss your available options and the recommended course of action for protecting your interest.
