One Time Income Payments Not On Schedule I?

[Squeezed2008]

[lrprn]

I am hoping to file Chapter 7 in late April or May. I have a question regarding disposable income. My income for the past six months for the means test includes a cash out of my 401k in January and my federal and state income tax refunds that I will be receiving in April.

These are both one time only payments, so I don’t think I would include them on schedule I as projected current monthly income. Is that correct?

So sorry to be the one to tell you this, but for calculating income for the means test, any source of income is income whether it's a regular paycheck or a one-time event.

Cashing out your 401K so close to filing was about the worst thing you could do. You converted a completely protected asset into one that now has to be protected by exemptions. Your 401K funds would have been completely protected if you filed bankruptcy in January, but there very well could be a good reason you couldn't wait. At any rate, it's water under the bridge now - no going back.

Worst of all, your cashed out 401K money now counts into your income calculations if you file before August 1, 2008. (The first month you don't have to count January's income in the six full calendar month look-back is August.) Have you spoken with any bankruptcy lawyers?

My concern is that if these one time only payments cause me to fail the means test, then I am hoping that I can still qualify for Chapter 7, as long as my schedule I actual income minus my schedule J actual expenses does not show any disposable income.

Everything depends on how much the 401K cash out was and how close it gets you to the median income in your state. What state will you be filing in? If you have to include your 401K cashout, does it put you over the median for your family size? See http://www.usdoj.gov/ust/eo/bapcpa/2...come_table.htm for the latest figures, but it looks like there may be changes coming on Monday, March 16.

You need to set up free or low cost initial consultations with 3-4 bk lawyers in your area to find out exactly where you stand on the income calculation and whether your local court is one that adds in tax refunds (luckily most don't).

At any rate, you should wait to file until after you receive your refunds and spend them down to where the remaining cash can be protected by your state's exemptions before you file. This is yet another reason to wait to file as long as you can and to get legal advice about when the best time to file for you will be.

[Squeezed2008]

Thanks for the reply Irprn. This forum is a very good resource for learning about bankruptcy.

I am in the Atlanta, Georgia area.

Yes I agree that I didn’t consider the consequences of cashing out my 401k. The 401k balance was about $14,500, but after federal and state taxes were taken out, I only received $10,700.

I just ran my income numbers for October 2007 thru March 2008, and I expect that I will come in well under the Georgia median if I file using the October to March period for the means test. I do not have any other income from October to March.

In order to use October to March for the means test, I think I would need to file in April. Is that correct? What possible Chapter 7 filing dates would allow me to use October to March for the means test?

I expect to receive the income tax refunds in April. I would hope that the tax refunds received in April would not count as part of an October to March means test, even though the tax refunds would be considered part of my assets subject to exemption limits.

Being under the median, I would pass the means test, so the means test would not be used to calculate disposable income, and only the Schedules I and J would be used to calculate disposable income. Is that correct?

Since the 401k cashout was a one time event, it should not be part of my projected current monthly income on Schedule I. Is that correct?

I am planning on seeing a local bankruptcy lawyer in the next couple of weeks, but I am trying to learn as much as I can on my own as well.

[pa308]

I am receiving a 2500 bonus on 3-31. If I am filing in May do I take Nov, Dec, Jan, Feb, Mar, Apr and average them out to come to the 6 month average?

[Squeezed2008]

Hey Y’all, I just have a couple of questions that I was hoping to hear your opinions about.

1) In order to use October to March for the means test, I think I would need to file in April. Is that correct? What possible Chapter 7 filing dates would allow me to use October to March for the means test?

2) Being under the median, I would pass the means test, so the means test would not be used to calculate disposable income, and only the Schedules I and J would be used to calculate disposable income. Is that correct?

3) Since my 401k cashout in January was a one time event, it should not be part of my projected current monthly income on Schedule I. Is that correct?

Thanks a bunch!

[lrprn]

1) In order to use October to March for the means test, I think I would need to file in April. Is that correct? What possible Chapter 7 filing dates would allow me to use October to March for the means test?

The lookback for income calculation is six full calendar months. That means if you file anytime between April 1 and April 30, the lookback will be from October 1, 2007 to March 31, 2008.

2) Being under the median, I would pass the means test, so the means test would not be used to calculate disposable income, and only the Schedules I and J would be used to calculate disposable income. Is that correct?

If your income is below the median, then you are done with the Means Test before its end. It would be very unusual for you to be well below the median income for your state and still show sufficient disposable income on Schedule I minus J to support a Ch 13 plan.

3) Since my 401k cashout in January was a one time event, it should not be part of my projected current monthly income on Schedule I. Is that correct?

The answer to this question hasn't changed since you asked it last week earlier in this thread.

If you actually cashed out your 401 in January then I'm sorry to say that what you cashed out will indeed count into your income calculation.

Here's the list of what counts when calculating CMI (Current Monthly Income):
- Gross (before tax and deductions) wages, salary, tips bonuses, overtime, commissions
- Business income (net of expenses)
- Rental and other real property income
- Interest, dividends, and royalties
- Pension and retirement income
- Any amount paid by another person for the household expenses of the debtor, including child or spousal support
- Unemployment compensation that is not a social security benefit
- Any other income
(from http://www.mwortmanlaw.com/chapter7-means-test.htm)

Notice the fifth item - there's your cashed-out 401K funds.

[Squeezed2008]

Thanks Irprn,

But I’m having some difficulty with understanding how projected current monthly income on Schedule I is projected. It seems to me that income Schedule I cannot be the same as income on the means test.

I understand that my 401k cashout would be included in the means test because it happened in January 2008. However, the 401k cashout was a one time payment in January, so it would not be accurate to include it in projected current monthly income on Schedule I.

It seems to me that Schedule I should only include income that I actually expect to receive in future months. I will not be getting future 401k income in May, June, July, and future months.

[lrprn]

I understand that my 401k cashout would be included in the means test because it happened in January 2008. However, the 401k cashout was a one time payment in January, so it would not be accurate to include it in projected current monthly income on Schedule I.

It seems to me that Schedule I should only include income that I actually expect to receive in future months. I will not be getting future 401k income in May, June, July, and future months.

Welcome to the huge hole the very badly written current bk law left when the primary authors (who btw were primarily lobbyists for the credit card industry) conceived using the Means Test and IRS expenses to try to force more filers into Ch 13 to pay back unsecured creditors like...duh...credit cards!

Even though it is totally illogical, this is the way the law is written. Self-employed workers and workers on commission run into this problem all the time when they try to file when they have unusually large paychecks and commissions during the six month lookback that aren't normally a part of the income stream.

This is why when you are close to the median income, pre-planning the timing of your bankruptcy to ensure your income is at its lowest possible for the six-month lookback is very important.

[mtbc]

That's interesting. The latest edition of the Nolo chapter 7 book says quite explicitly on page 179 that your schedule I income is what you expect going forward and is likely different from your form 22A income.

[ChaseDidThis]

I filed below median, my 6 month look back showed 2 incomes, and schedule I only showed 1, so my forward looking income was definitely different than the past. It makes sense though that large paychecks for people on commision could cause a problem as the trustee would have to use that as a basis for future income.

I had a similar concern because of unusual high number of overtime hours during the look back period, but my attorney said just estimate future overtime and that would be fine because any way you figure it, I would still be below median.