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Court ruling may discourage jobs for the financially troubled

by on
in HR Management,Human Resources

A new ruling by the 5th Circuit Court of Appeals (which includes Texas) may encourage people who file Chapter 7 bankruptcy to remain unemployed until the court finalizes their bankruptcy.

The case: Carlos Cortez and his wife filed jointly for Chapter 7 bankruptcy protection. At the time, Carlos was unemployed and his wife worked as a nurse. Four days after they filed, however, Carlos was offered and accepted an HR director position with a $95,000 salary.

After learning of Carlos's new job, the U.S. Trustee filed a motion to dismiss the bankruptcy petition, noting that the Cortezes now have the means to repay their debts through a Chapter 13 repayment plan.

The bankruptcy court denied the motion, concluding, "post-petition events should not be considered in deciding whether to dismiss a (bankruptcy) case." But the 5th Circuit reversed this decision, saying bankruptcy courts can and should take post-petition earnings into account when deciding whether to dismiss a Chapter 7 petition. (U.S. Trustee v. Cortez, No. 05-10459, 5th Cir. 2006)  

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