Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Daniel Gill
A possible year-end bonus—payable at the employer’s discretion—isn’t property of the employee’s Chapter 7 bankruptcy estate, a bankruptcy judge ruled ( In re Bronikowski , 2017 BL 206427, Bankr. W.D.N.C., No. 16-50719, 6/16/17 ).
The June 16 opinion by Judge Laura T. Beyer of the U.S. Bankruptcy Court for the Western District of North Carolina examined whether the possible bonus was a “contingent interest,” or something the debtor would have if certain conditions were met, or only a hope and expectation of the debtor. As the latter, it wasn’t property of the bankruptcy estate subject to the trustee’s administration.
Lisa and Vincent Bronikowski filed a Chapter 7 case Nov. 11, 2016. In Chapter 7, debtors’ assets are liquidated by a neutral trustee for the benefit of creditors.
In filing papers, the Bronikowskis disclosed a possible year-end bonus for 2016 that might be paid to Lisa in February 2017. By the time the court considered the matter, no bonus had been paid, the court said. The previous year, Lisa received a bonus of $30,000.
The debtors claimed a portion of the unknown and hoped-for payment as exempt property, to the extent that the bonus might be considered property of the estate. The trustee objected.
The court considered whether the as-yet-unpaid bonus was actually property of the estate, subject to the trustee’s administration.
The court examined the issue under the lens of what, if anything, the employer was compelled to do. The “court believes that the discretion of the employer is the most important consideration for determining whether an anticipated bonus is property of the estate,” it said.
“If an anticipated bonus is truly dependent on the discretion of a third party, as the female Debtor’s bonus is according to [her employment contract], then a debtor’s interest is merely a hope or expectation . . . and is not a property interest that a bankruptcy trustee can administer,” the court said.
The court noted that there were lots of contingencies to her receiving the bonus. She must maintain her employment, and her post-bankruptcy performance must be satisfactory, for example. Importantly, the employer maintained discretion and could decline to give a bonus.
Because the prospective bonus was not property of the estate, the court didn’t consider whether there were grounds to object to the claimed exemption. There is no need to exempt property that is not property of the estate, it said.
The Bronikowskis were represented by Christopher D. Layton, Charlotte, N.C. Anna Cotten Wright, the trustee, was represented by Michael Leon Martinez, Charlotte, N.C.
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