Understanding the Bankruptcy Estate
When filing for bankruptcy, most people are aware that they may have less control over their assets, and may even have to surrender some assets. However, many people are unaware of the fact that a bankruptcy filing technically changes the nature of your assets in the eyes of the court, and that timing makes a huge difference in what assets are available to your creditors.
Once you file for bankruptcy, there are two things that automatically occur: the automatic stay springs into effect to prevent your creditors from collecting, and the bankruptcy estate is created.
The bankruptcy estate defines the nature of your assets by the date and time that you filed for bankruptcy. Money earned immediately before filing for bankruptcy is considered property of the estate, while money earned after filing your petition is not a part of the estate.
Only estate assets can be used to pay creditors, and therefore the timing of your filing can make a huge impact on the amount that you pay your creditors in bankruptcy. If you recently received a promotion, for instance, filing for bankruptcy sooner rather than later might be a good way to do.
However, just because you were paid or given assets after filing does not necessarily make them non-estate assets. If they were earned or promised before the filing of your bankruptcy petition, they may be considered estate assets even if you were given the property after you filed for bankruptcy.
Therefore, your paycheck the Friday after you file for bankruptcy will be considered property of the estate and used to pay creditors. Life insurance benefits and other assets that you receive after bankruptcy filing but which are connected to past events may also be considered estate assets, and should be discussed with an attorney.