341 this morning. Attorney suggested not to see trustee last minute!

[sodigital]

(San Diego) So 15 minutes before I go to see the trustee, my lawyer looks over my bank statements and with a confused look on his face pulls me into the hallway.

He says he's concerned about the expenses not being enough to offset my income (I'm self-employed) and suggests that I don't show up, so the trustee can dismiss the case. He wants to file again when my bank account is showing less money.

It's a recent business (started Aug '12 and I was unemployed before that) and the average net income is only around $3k. However, my bank statements show a balance of 20k+ because I am still waiting for invoices from various vendors. In this particular business large sums of money come in, but large sums of money also have to go out.

I'm not upset about showing more documentation or anything like that or having to explain my business to the trustee. I'm pissed that my lawyer didn't have the foresight to bring this up earlier and the fact I have to pay $300 to file again. He had my profit & loss statements and I never hid anything from him. I even asked him specifically if showing that much gross income would be a problem and he said multiple times it shouldn't be.

Isn't it my lawyer's job to show the trustee that that 20k isn't all profit and a lot of is pending business expenses? Or did he not trust me to tell the trustee that myself?

/rant

Is my lawyer incompetent or is anyone else in a similar situation?

[despritfreya]

I am not following. . .

1. Is the attny worried that the bank balance shows your business has “value” and the trustee will shut it down and sell it? For that matter is your business a sole proprietorship, LLC or corporation?

2. Is the attny worried that the bank balance shows you have the ability to pay your creditors and that you might be facing a Motion to Dismiss based upon “abuse”?

3. Is your attny worried that he did not calculate the Means Test correctly for the 6 month period before filing?

Did you take the attny's advice and not appear at the 341?

And. . . Welcome to the forum.

Des

[sodigital]

Des,

1. Yes. Sole proprietorship.

2. That's the impression I got from him. He stressed we need to "protect" that money.

3. Probably. He mention he doesn't think I show enough expenses.

He probably explained in more detail but I was so mad I wasn't really hearing him. After I heard "re-file and pay $300 again" I pretty much shut down.

I did take his advice and went home after muttering, "you're the expert." He said he would call me to plan a new strategy.

Thanks for welcoming me! Signed up last night. Wish I found this place before I filed. =)

[sodigital]

Correction:

1: Not sure what he was thinking. Sole proprietorship.

[despritfreya]

The problem with a sole prop is that, depending upon your jurisdiction, ALL of the gross revenues are used to calculate your “monthly income” for the 6 month window prior to filing and none of your business expenses are used to reduce that amount (regardless of how the form is filled out). Doing this usually puts the debtor well above median income and forces them to complete means testing which, again, depending upon your jurisdiction, may or may not allow you to deduct business expenses as “special circumstances” for means testing purposes in the context of a Chapter 7. Yes, very confusing.

My suggestion is to calmly sit down with your attny and go over the problems he sees. It is always possible that a month ago this was a non-issue but that within that month’s time, some case was decided that has him worried. For now, give him the benefit of the doubt.

Des.

[paulsk]

I am in the same situation, but I have an S corp. I have expenses that go out of my business account, being a sole prop its the same thing. I might have the same issue thinking about all this.

[LadyInTheRed]

I am in the same situation, but I have an S corp. I have expenses that go out of my business account, being a sole prop its the same thing. I might have the same issue thinking about all this.

The situation is different with a corporation than it is with a sole proprietorship. The corporation is an asset that needs to be valued, listed on your petition and exempted if possible. Your corporation is separate from you and hopefully you treat it that way (i.e., you don't use the corporate checking account to pay your personal expenses). Assuming you do, income that you receive from the corporation (via dividend payments or a salary) is listed as income on your petition. The corporation may have receipts that are sitting in an account so that it can pay liabilities as the bills come in. That comes into play when determining the value of the corporation, but it is not considered income to you until you, an individual, receives the income.

If you haven't observed corporate formalities and managed the corporation separately from your own assets and income, than the trustee could try to pierce the corporate veil and treat it more like a sole proprietorship.

[sodigital]

Thanks for your input, Des. That makes a lot of sense. I guess in the whole scheme of things it isn't that big of deal as long as it ends well.

I feel calmer now.

The problem with a sole prop is that, depending upon your jurisdiction, ALL of the gross revenues are used to calculate your “monthly income” for the 6 month window prior to filing and none of your business expenses are used to reduce that amount (regardless of how the form is filled out). Doing this usually puts the debtor well above median income and forces them to complete means testing which, again, depending upon your jurisdiction, may or may not allow you to deduct business expenses as “special circumstances” for means testing purposes in the context of a Chapter 7. Yes, very confusing.

My suggestion is to calmly sit down with your attny and go over the problems he sees. It is always possible that a month ago this was a non-issue but that within that month’s time, some case was decided that has him worried. For now, give him the benefit of the doubt.

Des.

[paulsk]

Thanks! That was good information. I was worried all night.

The situation is different with a corporation than it is with a sole proprietorship. The corporation is an asset that needs to be valued, listed on your petition and exempted if possible. Your corporation is separate from you and hopefully you treat it that way (i.e., you don't use the corporate checking account to pay your personal expenses). Assuming you do, income that you receive from the corporation (via dividend payments or a salary) is listed as income on your petition. The corporation may have receipts that are sitting in an account so that it can pay liabilities as the bills come in. That comes into play when determining the value of the corporation, but it is not considered income to you until you, an individual, receives the income.

If you haven't observed corporate formalities and managed the corporation separately from your own assets and income, than the trustee could try to pierce the corporate veil and treat it more like a sole proprietorship.