Realtor Commissions: Time The Bankruptcy, Not The Settlement, To Keep The Money

Real estate agents and brokers may believe that they don’t truly earn their commissions until settlement, but that’s not the controlling law in Maryland and many other states.  Maryland Real Property Article Section 14-105 states that in the absence of a special agreement to the contrary, a listing agent earns their commission when a binding agreement is signed. At that time, the realtor obtains an interest in property that would need to be disclosed on their bankruptcy papers.  This means that if a realtor procures a contract for the sale of a home and files bankruptcy before settlement those commissions will become part of that realtor’s bankruptcy and belong to the trustee.

If the pending commissions are less than the statutorily allowed exemptions in the particular state then this rule is not a problem: The realtor will disclose the commissions payable, file an exemption for that amount and get to keep the money. Problems arise when commissions earned but not yet received are combined with the realtor’s other property and the sum exceeds the statutory allowance.  In that case the realtor may have been better off waiting to file the bankruptcy case until after settlement, when the money can be strategically spent.

Realtors can’t game the bankruptcy system by timing their settlements.  If the commissions are sizable enough a Chapter 13 reorganization may be preferable to a straight Chapter 7 liquidation. Either way, avoid the nasty surprise when the trustee demands a commission you’re counting on: do careful planning before pulling the trigger and filing a bankruptcy case.


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