Chapter 13 - Will a Trustee pro-rate a bonus for Mean's Test?

[CAJ]

I just received our "final" draft. Our Schedule I and J show we have $125.00 left over and our Model Plan says we will pay Trustee $125 a month for 60 months. The Means Test shows $1600.00 disposable income - we definitely don't have that. The problem is I received a $6,000 bonus in March. I've been trying to call attorney all day to explain this to me - this is his the paralegal's response.
"We wrestled with the figures a bit longer than anticipated. The final calculation of 6 month income resulted in a higher B22c DMI figure, as expected. We will assert that the one-time bonus should be pro-rated throughout the year, and argue that schedule I/J disposable income is more accurate for ongoing plan payments. The Trustee will have his own opinion and we will have opportunity to amend schedules as needed prior to confirmation of a Ch. 13 plan."

I am an absolute bundle of nerves going into this not knowing what our payment may be. I know a Trustee won't agree to $125, we make too much and owe too much, but we can't afford $1600 and there's a lot of #'s in between the two. OMG I'm just a wreck.

[LadyInTheRed]

That strategy is consistent with the Supreme Court's Ruling in a case called "Lanning" that Schedules I/J are forward looking.

Held: When a bankruptcy court calculates a debtor’s projected disposable income, the court may account for changes in the debtor’s income or expenses that are known or virtually certain at the time of confirmation.

You can read the syllabus of the case and the entire opinion at: http://www.supremecourt.gov/opinions/09pdf/08-998.pdf

The $6,000 bonus does not explain the entire difference between the $125 and $1600. What makes up the rest of the difference between the means test and Schedules I/J?

If you are going to make it through this process with your sanity intact, you will need to figure out a way to deal with those nerves. There will be negotiations and, if the negotiations aren't successful, argument in front of the judge. There is no way to know what your plan payment will end up being. You need to make sure you stay in contact with your attorney throughout the process and insist that he keeps you informed and explains what is happening in a way that you understand.

Have you considered delaying your filing until October so the bonus won't be part of the means test?

[justbroke]

It is perfectly normal to assert that it's an annual bonus. If it's a one time bonus, you can even assert that it should have no affect on your disposable income (DMI).

The problem that I also see, is that $6,000 / 12 (months) = $500/month average from the bonus. If you add your DMI of $125 with $500, that's $625. That's a different of, still, almost $1,000 between your B22C and Schedule I/J.

Something is not adding up. Just relax and let your attorney work through the numbers. You don't need to get nervous. Patience will help and if you can hold out until October, perhaps the numbers will level out better (without the impact of the bonus affecting the number... just as LITR writes).

[andy158]

One thing about bonus payments is that they are considered unearned income and taxed at an extremely high rate un most cases. That $6,000 bonus ends up being closer to $3,500 after taxes. Thinking that is hardly enough to make a significant difference in your DMI over 12 months. About $292/mo. Unless you are referring to the $6,000 as after tax income.

We had bonuses factored into our plan calculations and the attorney said if you end up with a bonus of over $10,000 we will deal with it at that time. Has never happened. My last one time bonus was $5,581.25 (largest one yet) with a take home amount of only $3,229.41 after taxes.

[TooMuchCredit]

One thing about bonus payments is that they are considered unearned income and taxed at an extremely high rate un most cases. That $6,000 bonus ends up being closer to $3,500 after taxes.

The tax withholding of a bonus is at a higher rate, so what is withheld in taxes is higher. But when you file your taxes, that bonus is treated and taxed the same as regular income, so you get some of that withheld amount back. It's kind of hidden but if you actually if you make $75,000 as a salary vs. $60,000 plus a $15,000 bonus, you'd still pay taxes based on a $75,000, but the amount withheld in the latter would be more, so you'd get a bigger refund or owe less than in the former.

[LadyInTheRed]

The tax withholding of a bonus is at a higher rate, so what is withheld in taxes is higher. But when you file your taxes, that bonus is treated and taxed the same as regular income, so you get some of that withheld amount back. It's kind of hidden but if you actually if you make $75,000 as a salary vs. $60,000 plus a $15,000 bonus, you'd still pay taxes based on a $75,000, but the amount withheld in the latter would be more, so you'd get a bigger refund or owe less than in the former.

Yep. And on the means test, you are supposed to enter the tax liability actually incurred, which is not necessarily the same as the tax withheld.

[CAJ]

Thank you all. Still waiting for attorney to call back. I've placed 3 calls and nothing yet. All our debt is unsecured/credit cards and we stopped paying last August so I'm afraid to wait another 5 months for fear of a lawsuit. I agree the numbers don't jive. Still not sure why I and J is so low.

[LadyInTheRed]

You very well could make it until October without any creditor suing you and getting a judgment. Even if somebody does get a judgment, that can be taken care of in the bankruptcy.