In Chapter 13 - Want to start new business (already earning money)

[coopersmydog]

Before I started my chapter 13 3.5 years ago I had some websites that generated a little revenue (very little). By the time my BK rolled around they weren't making anything and I really hadn't thought about them in a long time.

Fast forward to now. I have 2 of those sites starting to earn a pretty significant amount of money over the past 2 months. I'm wondering what my options are.

1. Can I start an LLC or something and just reinvest all the revenue back into the business with no impact to my BK?

2. Do I just consider this regular income, discuss with my attorney and figure it out from there (I'll talk with my attorney, but this seems like it will be hard because of taxes and variable amounts of income.

I have something like 16 months left in my plan. Obviously I don't want to jepordize that, but at the same time I'm not going to give up 1.5 years of potentially growing this business either.

Ideally I'd be able to reinvest into the business and basically operate at a loss for the next 1.5 years or so and not worry about it. But again, I don't want to do anything that will risk the BK.

And please, let's not focus on the fact that I have some websites making money and the merit of that being a real business. They generate revenue from advertising just like this forum. It's a legitimate publishing business model that I want to grow.

Looking forward to the answers.

[coopersmydog]

Anyone?

[ValleYum]

Anyone?

This site seems to slow down on the weekends. Maybe give it just a bit more time?

Good luck!!

[tobee43]

i don't know much about 13s and as Valle says, sometimes on the weekends people are not on the site as much as during the weekdays.

one would think it may be helpful or necessary to run this by your atty, as it could potentially help you pay off your 13 early. by paying off your 13 early that would realize a loss from any increase in income, in addition to getting you out of your bk early. the next year or so you could put back all profits into the business to continue to indicate a loss. it would be a simple model, provided you can get it past the trustee, which i can't see why they would say no when you would be paying them off earlier. the only consideration would be if you didn't want that and you had an increase in income they would up your payments anyway.

best of luck to you, someone else with more insight into 13's will come along and hopefully provide the answers you are looking for.

[justbroke]

First, I believe the responses are almost non-existent because this would not be a typical Chapter 13 bankruptcy. Most people going into Chapter 13s do not want to operate a business. Unless it is some sort of single-asset real estate business (read single multi-tenant property), there could be reporting requirements while in the Chapter 13.

As a business owner who was in a Chapter 13, I would avoid trying to run a business while in a Chapter 13 unless you were already a business owner and that is your primary source of income. That's just my opinion.

For details on how the Trustee sees Chapter 13 business owners (sole proprietorships) see the Trustee Guidebook for Chapter 13 Businesses at https://www.justice.gov/ust/r15/docs...delines.pdf.

That guide states nothing about corporations (LLCs, S-Corp, Corpration, partnerships) because it deals with a debtor themselves. Your issue with an LLC or other corporate organization could be the shares. Whether that constitutes DMI would be the question.

The only way to answer these questions is to seek an experienced Chapter 13 attorney who has direct and applicable experience with this specific type of Chapter 13 where the debtor owns a business (NOT as a sole proprietor).

(I do not know why the link is broken, but search Google for "trustee guidelines chapter 13 business")

[coopersmydog]

When I looked at that guide it didn't really mention anything about how the income is treated in a confirmed plan. It just mentions the trustee can request operating reports. I don't have the business set up as an LLC or anything right now. I just have a couple websites earning what is becoming pretty significant income that didn't exist when my plan was confirmed.

The question I have is do you think that is DMI, or if the business doesn't show a profit can it be excluded. I'm going to talk to my attorney, I just like to hear what experienced folks have to say.

I've had multiple moves, income increases, decreases, etc. in the 3.5 years of my plan and my trustee hasn't changed my payment once. But I'm really in a catch 22. I can't exactly stop the revenue and meet my long term goals for the business, but I don't want to mess up my plan either.

[justbroke]

The question I have is do you think that is DMI, or if the business doesn't show a profit can it be excluded. I'm going to talk to my attorney, I just like to hear what experienced folks have to say.

If you are a sole proprietor, then that income is DMI if it is not offset by expense. Upon filing bankruptcy, I only had my real estate rental business. I tried to keep that afloat, but it didn't work. The Trustee did not request semi-annual reports for the rentals. In fact, I petitioned to pay any of the expected DMI from the rental, directly to the Trustee and not through payroll deduction because the property may not have been occupied at any given time.

've had multiple moves, income increases, decreases, etc. in the 3.5 years of my plan and my trustee hasn't changed my payment once. But I'm really in a catch 22. I can't exactly stop the revenue and meet my long term goals for the business, but I don't want to mess up my plan either.

It is typical for Trustees to not worry about small or incremental increases in income (such as 10% or so moves). It is when the increase is significant when they "may" want to modify the plan. I do not know what significant means to any particular Trustee, but they don't seem to care about things under 20% in many cases.

The income would never be "excluded" per se. You would report the income on Schedule C on your annual IRS tax return. The Trustee should review your annual returns and determine whether there is anything that should trigger a change in your confirmed plan. On your Schedule C, you can make deductions for various business expenses, so that your actual affect on your income, should be negated in some manner. I can't tell you specifically whether the Trustee will dig into the expense of the business -- which is really your alter ego -- or keep your plan the same. The detail is really in what the relevant expenses become and that you schedule them on your tax return.

I understand exactly where you are at this point. You need to decide whether you want to invest and allow the business to flourish, or to temper the growth and stay off the Trustee's radar. It's really hard to gauge from my perspective. I would want to believe that if you have actual and relevant expenses listed on Schedule C (or some other IRS form) for the business, then the Trustee would be okay. If the business is making a significant "profit", meaning the traditional term of profit, then that could become problematic.

[coopersmydog]

I'm not going to lie on the schedule C, I'll get a real CPA, etc. But if I understand you right as long as I handle the income properly I shouldn't have any issues as long as the schedule C is reported properly.

Worst case, the trustee includes the profit from the schedule C and decides how much to take of the tax refund assuming there is one, correct?

My projection is that the business would raise my income 25-40% if there were no expenses (only income tax). But I can reinvest basically all the revenue back into the business via buying new websites, etc.

[justbroke]

I am saying that legitimate expenses that are shown on your Schedule C (or other depreciation/expense schedules) should be fine. I know that on the Means Test, it specifically shows income from business and then the expenses. The Means test then has the net revenue from the business. Again, so long as the expenses are legitimate, I don't see a problem.

(The business income is on Line 3 of the Means Test for Chapter 13s (Form B22-C). This is the section that I had to complete for my real estate business. I was showing a $440/month "profit" at the time I filed. However, it was offset by the expenses (mortgage) of the real estate, but that's handled differently.)

[coopersmydog]

Awesome, thanks for the help. I'll be getting with the attorney to look into my options, but you've helped a ton.

[magic13]

Also you should consider even if your Trustee sees your tax return NEXT YEAR and requests that your plan increase, you will only pay the increase for 3 or 4 months and then your plan will be over. There are a lot of people who are trying to make additional money and make financial moves while in a chapter 13 instead of sitting around talking about how long five years is. Hey I say live your life if your plan increases so be., it won't be retroactive.

[TheBajan]

Hello there.

I hope I can offer some bit of advice. I have a small home based business that I keep as a sole-proprietorship. I make a little money at it... my atty is aware of this and I file my taxes and submit my returns. The trustee isn't as interested in where you make your money as he is in how much you make. Certainly, you can operate and expand a business in a ch 13. If your income increases significantly as you suspect it will, you will probably get notice of an increase in your payments. With so little time left in your plan... I wouldn't hold back on letting your business grow.

Congratulations!

[dmc-2008]

When they increase payments in this way would they need to review all expenses again or do they give you a set amt to just pay.

[justbroke]

When they increase payments in this way would they need to review all expenses again or do they give you a set amt to just pay.

You would review ALL the expenses and, in most cases, file a new Means Test and Schedule I/J along with a Motion to Modify (or in response to a Motion to Modify). That does not mean that the Trustee may just say "you need to start paying $X" now. If that happens, it should require a hearing a Motion to Modify. You deal with it just as any ofter Motion to Modify which would include the new expense reporting (Schedule I/J, Means Test).

[LadyInTheRed]

I agree that you should look to the long term and do what is best for your future, even if it means an increase in your plan payment.