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jbrlaw
jbrlaw, Attorney
Category: Bankruptcy Law
Satisfied Customers: 269
Experience:  Creditors' rights lawyer involving collections, foreclosures and bankruptcies for almost 19 years.
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If I'm downsized from my job and receive severance

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If I'm downsized from my job and receive severance pay, how is that severance pay treated in bankruptcy? For Ch 7, is it treated like any other asset and can be totally used against the debt? What about Ch 13? Is there any allowance for it being used to pay for monthly expenses while I search for a new job? I live in Nebraska if that makes a difference.
If it is received in one-lump sum, it will be treated as savings and may be exempt, since every person has available exemptions for certain property and dollars. If you are being paid severance over time, it will be treated as income for that period of time.

Please provde some background and wwhen you plan to file a Chapter 7 or 13. I'll then try to provide more specifics.

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Please note that I may not be licensed to practice law in your jurisdiction. As such, my above comments shall not be construed as legal advice and shall not be deemed to form an attorney-client relationship.

Customer: replied 9 years ago.
Reply toCustomers Post: Thanks. The severance would be paid as a lump sum. If I'm downsized it would be by the end of Sept.

As for filing bankruptcy it depends on the outcome of our short sale. We received approval from our lender to find out the wrong numbers were used for the approval. They had the wrong amount for purchase price (too high) and the wrong number for the back taxes (too low). Chances are they will not accept the short sale now and will proceed with the foreclosure sale. It was already postponed 1 month. We've already moved and have no intention of keeping the house.

Depending on that, I may face a potential deficiency judgement which could force me to file bankruptcy. When that might happen is a guess. I suspect that without a job I would try to file Ch 7 and would that cause the severance pay to be liquidated as other potential assets would be.

I would receive approx 1 years severance which would be around $135K before taxes.
Perfect. If you are not downsized yet, then, if you file a Chapter 7 now, your assets post-bankruptcy should not be liquidated. You don't know for certain that you will be downsized and receive the payment. So, you cannot list it. You have an obligation to update later, but if you can process the Chapter 7 before the end of September, you'll have the best of all situations under the circumstances.

Also, if you give up the house in bankruptcy, then your tax exposure for the deficiency and the deficiency itself should be eliminated from the picture.

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Please note that I may not be licensed to practice law in your jurisdiction. As such, my above comments shall not be construed as legal advice and shall not be deemed to form an attorney-client relationship.

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