As someone who is planning to file for bankruptcy as a consumer, you mainly have two options: Chapter 7 bankruptcy, which is a near-complete liquidation of debt, and Chapter 13, which offers you the ability to create a structured repayment plan. For many Americans with at least some form of a steady income, Chapter 13 often is the most used approach. However, if a main source of your income relies on the commission that you earn, then entering into a situation where you are expected to make regular monthly payments may seem a bit daunting since you are unable to calculate how much money you will be able to earn on a regular basis. But according to Mark Cohen, a Chapter 13 bankruptcy lawyer in Queens, New York, you probably don’t have too much to worry about.
The important thing to remember if you have a career in sales, or another position that works mainly off of commission, is that when you file for bankruptcy, the court is looking at the past and is not trying to predict the future. The cornerstone of consumer bankruptcy, he continues, is the means test, which determines whether you are qualified to file for bankruptcy and how much you can reasonably expect to pay to the bankruptcy trustee every month.
To apply the means test to your particular situation, the bankruptcy court calculates your average earnings for the six months prior to the date that you filed for bankruptcy and compares it to the median income in your area. If your income is above the median number, then Chapter 7 bankruptcy is not an option for you and the court will continue to apply the additional calculations for your repayment plan through Chapter 13. The next step takes your average income, minus your necessary living expenses, and multiplies it by 60-equivalent to the number of months you’ll have to repay your debt in a five-year plan. This final figure then represents the expected amount of income you will have over the next five years to pay off your remaining debt. With careful planning on your part and with the experience and advice of your lawyer, a monthly payment plan is put into effect that is designed to be a sensible and manageable figure that will eventually clear your debt.
If it happens that your income fluctuates drastically from month to month, then the idea is that the average will be reasonable for you to pay off your debt. However, Cohen says, if for whatever reason the situation arises where you take home much less commission than expected, you unfortunately still have to make your monthly payment to the bankruptcy trustee regardless. This is a commitment that you are taking on, he adds, and you have to learn to manage appropriately.
The wonderful thing about Chapter 13 bankruptcy that appeals to so many people, however, is the ability to lump all of your remaining debts together and then pay them off in a comfortable manner. If after bankruptcy you are able to put yourself back on the road to financial success, then even if most of your salary is based on commission, you should still be able to plan for a debt-free life.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.