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Timing of earnings significant in bankruptcy filing

Virginia residents who are considering filing for Chapter 7 bankruptcy should keep records of any earnings before and after the bankruptcy petition. In Massachusetts, a court found that the claims of an attorney who filed for Chapter 7 bankruptcy regarding when he earned a portion of his income were not credible.

The dispute hinged on payments made to the attorney by a client. After filing, the attorney invoiced the client for three separate amounts totaling more than $10,000. According to the lawyer, these were for services that occurred after the bankruptcy petition was filed.

The court said that the client did not ask the attorney for further services after the bankruptcy petition was filed and that any earnings for services rendered prior to that time were part of the bankruptcy estate. Under a Chapter 7 bankruptcy, a person's non-exempt assets are liquidated with the proceeds then distributed to creditors. According to the court, the lawyer was continuing to represent the client in a lawsuit because the client and court had insisted upon it and not because he was still being paid for his services. The lawyer was ordered to turn $10,000 over to the bankruptcy trustee.

People who are struggling financially might be able to find relief from overwhelming debt by filing for bankruptcy. They might want to discuss their options with an attorney as well as how filing for bankruptcy will affect them. They might believe a number of myths about bankruptcy. For example, it is possible to rebuild credit after a bankruptcy, and people might be able to keep some assets. The need to file for bankruptcy can happen for a number of reasons that are outside a person's control including illness, divorce or job loss, and in some cases, filing for bankruptcy might be the most responsible action that a person can take.

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