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Can Bonuses Paid to a Debtor After Chapter 7 Filing be Taken by the Bankruptcy Trustee?


By:Michael A. Cibik

The Bankruptcy Appellate Panel for the U.S. Court of Appeals, Eighth Circuit, ruled that employment bonuses paid to a debtor shortly after she filed for chapter 7 bankruptcy could not be considered part of her bankruptcy case.  The court’s ruling allowed the debtor to keep $24,072.00 in bonuses, and it reversed a lower court’s order revoking her bankruptcy discharge for failing to list the bonuses in her bankruptcy papers.


In this case, the debtor filed a chapter 7 bankruptcy. She was a long-time employee of IBM.  On the date of filing, she was eligible for both a quarterly Excellence Award bonus and an annual Growth Driven Profit Award bonus.


IBM’s bonus program documents stated that “[n]o employee earns or otherwise becomes entitled to payment, or any portion of a payment, under the GDP program prior to payment by IBM.”  The IBM bonus program documents stated that this restriction applied to both bonus programs.  Bonuses were usually announced and then paid by IBM about sixty days after the close of the quarter for the Excellence Award, and about sixty days after the close of the calendar year for the GDP Award.


IBM paid the debtor an $8,000.00 Excellence Award bonus, for the last quarter, after the chapter 7 was filed but prior to the creditors meeting with the trustee.  IBM also paid the debtor a $16,072.00 GDP bonus, for the year, a few weeks later, after the creditors meeting.  Neither of these bonuses were listed in the debtor’s bankruptcy papers, and she did not inform the trustee that IBM had paid her the $8,000.00 bonus prior to the creditors meeting.  After the meeting, the debtor did have some correspondence with the trustee about the $8,000.00 bonus, but she never mentioned receiving the GDP bonus.


Upon learning more about the bonuses, the chapter 7 trustee asked the bankruptcy court to order turnover of the $24,072.00 received by the debtor, as well as fees and costs.  The trustee also asked the bankruptcy court to revoke the debtor’s discharge of debts due to her failure to list the possible bonuses in her original bankruptcy papers.  The bankruptcy court granted the trustee’s request.


The debtor appealed, and the appeals court reversed the bankruptcy court on all counts.  The appeals court held that under IBM’s bonus program documents, the debtor had possessed no ownership interest, whether contingent or otherwise, in either bonus, until actual payment of the bonus by IBM.  Although some employer bonus plans give the employee a vested interest in a bonus once employee goals are met, the IBM program specifically stated otherwise.

Michael A. Cibik, Esquire

Michael A. Cibik is a partner at the Philadelphia law firm of Cibik & Cataldo, P.C. He is one of the few bankruptcy attorneys in the Philadelphia area certified by the American Bankruptcy Board.

If you or someone you know is having financial problems, stop worrying and call Michael at (215) 735-1060 for a free consultation.


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