Q: Can I protect my commissions in bankruptcy?
The bankruptcy cases in Florida tend to bifurcate the commissions into passive commissions and commissions for which labor must still be provided for. If you are owed passive, residual commissions on a policy that you have already sold, get ready for your bankruptcy trustee to have his/her hand out to grab those residuals. You are going to have to make the case that all or some portion of those future commissions really aren’t “passive” because you must keep servicing the account in order to keep the customer from discontinuing with your product. Perhaps you are regularly contacting your policy holder? You are educating your policy holder? Visiting your policy holder? etc. You will have to convince your bankruptcy trustee (and possibly the judge) that there is nothing “passive” about your commission or only X % of the residual commission is truly passive. You may wind up “splitting the baby” with the bankruptcy trustee or settling for some agreed amount, if your argument is convincing, or you may wind up forfeiting this valued residual.
Some agents don’t have residual commissions. They have “one-off” commissions, such as a real estate agent that sells a home. If that is you, then you will want to check your pipeline and close it out prior to filing for bankruptcy (easier said than done of course!) because if you’ve got deals that are in the contract phase of closing, and your commission is pretty much a sure thing by the time you file for bankruptcy – sadly, that commission will be going to your creditors, not to you.
You may be able to avail of the same argument – that the commission is not really passive, if, for example, you continue to actively labor in the transaction (cleaning the property for an out of state seller, trying to assist the buyer with financing, etc.). The best advice is try to time your bankruptcy filing for a point when there are no reasonably foreseeable commissions due you.
Most trustees (in the case of Chapter 7) are looking for “low hanging fruit.” They aren’t looking to speculate about when, if ever, your potential customer, may buy a property you have listed or shown. That event may never actually happen. But once a deal goes to contract, the reality of a closing commission becomes a whole lot closer and depending on the amount of money that you would be due, may very well warrant keeping your chapter 7 bankruptcy case open for, in order to receive the commission.
Consider whether or not you could protect a portion of your “one-off” commission(s) by using the “Wild Card” exemption.