Illinois Bankruptcy Court Examines Whether Severance Pay is Estate Property

Illinois Bankruptcy Court Examines Whether Severance Pay is Estate Property

On May 1, 2018 the Debtor was laid off from his job. His employer offered the Debtor a separation agreement offering the debtor the amount of $83,333.33 which was four months of base salary. These payments were to be paid out to the Debtor in bi-weekly installments. In exchange, the Debtor had to agree to a non-compete provision, release of claims, be available to help transition his duties to others, and cooperate with and assist his former employer in connection with any audits, inspections, inquiries or legal proceedings.

On May 8, 2018 the Debtor filed a chapter 7 bankruptcy. At the time of filing, the Debtor had not signed the separation agreement nor received any severance pay. The Debtor then filed an adversary proceeding to determine that the severance pay was not part of the bankruptcy estate. The Debtor argued that the severance pay was excluded from the bankruptcy estate under 11 U.S.C. § 541(a)(6) because receipt of the pay was contingent on his execution of the separation agreement and compliance with its terms. The Debtor and the Trustee filed cross-motions for summary judgment.

The court examined whether the severance pay was property of the bankruptcy estate under 11 U.S.C. § 541.

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