Severance Payments Received By A Debtor After Chapter 7 Is Filed Were Considered Part of Bankruptcy Estate

In the case of In re Jokiel, 447 B.R. 868 (Bankr. N.D. Ill. 2011), the debtor was employed when he filed his Chapter 7 case. A few months later he was notified that his employment would be terminated and that he would be receiving a severance payment from his former employer. The chapter 7 trustee filed a motion for the debtor to turn over the severance payments to the trustee, as the trustee considered the payment as part of his bankruptcy estate. The debtor responded that since he did not become entitled to the severance payment until after his case was filed, it was not part of the bankruptcy estate.

The bankruptcy court held that §541 of the Bankruptcy Code, which is the section that describes what constitutes property of the estate, should be interpreted very broadly. The court found that the severance payments were part of the debtor’s employment contract and was given to him as an incentive to sign the original employment contract. Accordingly, the court found that the severance was not for post-petition services performed by the debtor and was therefore part of his bankruptcy estate.

Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. Our web site is located at: www.law-margulies.com. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.