UST Motion to Dismiss

[getouttadebt]

Yesterday the UST filed his motion to dismiss. This was based on an earlier Statement of Presumed Abuse filed 10 days after my 341. I am over the median income and filed using an attorney. I found this site after we filed so I didn't know too much about the whole BK process at time of filing. In our filing we passed the means test with negative disposable income.

In the 6 months look back of income, my attorney used my paystubs to calculate the amount on Line 3 of Form 22A, Gross wages, salary, tips, bonuses, overtime, commissions. I had sold some Stock Options and ESPP shares during that 6 months that the UST is using as income, and this is skewing my income much higher per month which is his basis for disposable income. These were one time events and the monies were used to stay afloat and pay creditors. In fact, at the time of the transactions, I had never considered filing BK.

Had I known these transactions would skew my income, I would have delayed my filing until 6 months had passed. But, this "extra income" was a one-time only event, and is not indicative of my future income.

I am meeting with my attorney tomorrow morning. Does anyone have any advice for me to remain in Chapter 7? Knowing what I know now, I could have manipulated the system by waiting to file which seems more like an abuse of the system than trying to stay solvent and not file BK.

Thanks in advance for any thoughts, input or advice.

getouttadebt

[Teddy]

I don't know but that sucks. I hope you figure it out - I agree it's not right. It wasn't what I would consider income either.

[seanf12]

Is this something your attorney can argue against in court?

[94mom]

I agree, it sucks. I cashed out my 401 and used every cent i had to pay these @)#)$@#)( creditors and we still lose.
Im sorry.. Hang in there.

[lrprn]

Not realizing that cashing out stock options does indeed count as income is a very unfortunate mistake.

Is the US trustee's motion to dismiss with prejudice or without prejudice? (Hoping you say without prejudice because then you can refile in six months with corrected income figures.)

[getouttadebt]

It doesn't say with or without prejudice. It does say, "As an alternative to dismissal, should Debtors consent, this case should be converted to a case under Chapter 13."

There is a hearing scheduled for May 20th, "If you do not want the court to grant the relief requested, or if you want the court to consider your views on the motion..."

If it is "without prejudice" can I refile 6 months after what date?

[sharksfan]

What if you move to 13 then switch back to 7 in 6 months? That will keep you protected from collection activities...

[getouttadebt]

Not realizing that cashing out stock options does indeed count as income is a very unfortunate mistake.

Do you mean this is an unfortunate mistake by me? I still argue that Congress never intended for people to manipulate the system by waiting a prolonged period of time to file in order to pass the means test. I filed because there were no other options available.

[hendry70]

Was your attorney aware of these sales or were they discovered by the UST?

[getouttadebt]

My attorney never asked and I never mentioned it. I never mentioned it because I forgot it happened. The money was gone -- down the drain to pay monthly expenses. Here's how the UST calculated my income -- he looked at my 12/31 paystub (YTD) and subtracted my 6/30 (YTD) paystub amount. He took that number and divided it by 6 and came up with a 6-month average. If you sell Stock Options or ESPP (Employee Stock Purchase Plan) shares, then this is reported as ordinary income on the paystub and included in YTD earnings.

I was looking at my actual payroll amounts for the period of 7/1/07 - 12/31/07 which is what we used on the form. This is my "real" income. Regardless, the UST's math does not add up, and we'll see what my attorney says tomorrow. It's probably my fault, as if I don't feel enough like a big piece of doggy poop already!

That said, it will probably be a Chapter 13 down the road and maybe I can covert back later. I don't know but we shall see.

getouttadebt

[HHM]

Just keep in mind...

If you get converted to a 13, from a 7, you lose your right to "voluntarily" dismiss your chapter 13. But, assuming you qualify, you can still "convert" to a 7 from the 13.

But, this is an unfortunate situation and I am not sure how you can fight it. The thing is, you can be over the median and still file chapter 7. You need to complete Form B22C and double check your schedules I and J. If you can prove that you have no disposable income, "going forward", you can still maintain a 7.

[getouttadebt]

Thanks, HHM. I know exactly what the problem is -- the extra YTD income from my paystubs included something like $21,267.89 of extra income and divided by 6, adds $3,544.65 extra income each month which is what causes the UST's assumption that I have $2,574 of disposable income per month. This is absurd. If I had that, I wouldn't be filing BK.

If I dismiss my case now, won't creditors be circling like a hawk looking for dinner? I wouldn't be able to file for 180 days and in that time wouldn't the creditors file suit and win judgements against me?

[keepmine]

If I dismiss my case now, won't creditors be circling like a hawk looking for dinner? I wouldn't be able to file for 180 days and in that time wouldn't the creditors file suit and win judgements against me?

Maybe/maybe not. If they did though, those judgments are discharged in a Chapter 7.

[rfassett]

getouttadebt, are those SO's an annual thing? I know some compensation is structured that way and the employee "cashes them in" every year. Is that the case with yours? Or was this truly a one time thing? If it was a one-time thing, then your attorney should be able to request a hearing before the BK judge to hear your argument. Don't know if it would work, but "nothing ventured, nothing gained"! Clearly, your attorney will want additonal funds to pursue this so you need to make sure the attorney understands your willingness to pay - if you can. If you can't pay, then you may as well fire the attorney now and pursue your own remedies.

[getouttadebt]

This extra income was a combination of Stock Option and ESPP shares. The Stock Options are more of the typical 4-year vesting schedule. I received a grant of 3,000 shares back on 7/15/04. Have sold some along the way when I needed the money. In 2007, I needed some more money (to make ends meet), so I turned to my Stock Options and ESPP shares. Again, I had no idea this would negatively impact me because I wasn't thinking BK at that time. Anyway, back to the Stock Options and ESPP shares...

I sold 1000 options in July and 438 options in November (all that I had vested at that time).
I sold 412 shares of Common Stock acquired through ESPP on 8/15 (all that I had accumulated). All this income was added to my YTD earnings, but wasn't through payroll.

On the UST's Motion for Dismissal, he states, "...Gross pay for calendar months July through December", and he includes the stock-based compensation. The word "pay" is incorrectly used by the UST in his Motion. The intent of the means test is to calculate average income which is indicative of future income. In my case, his assessment of my average income is flawed because it is NOT INDICATIVE of future income. That alone needs to be corrected and could make the Motion invalid.

In the end, the UST states as reason for his Motion, "...after correcting these errors, Debtors' monthly disposable is income $2,574.12." This is irresponsible of the UST to state that my income is over $3,500 more than actuals and disposable income is over $2,500. Plus, he has made errors throughout his Motion that I plan to defend. It will cost me more money, but I won't be pushed around.

Further, I submitted 8 months of paystubs as requested. All he needed to do was add up the sum total of the 6 months prepetition. Instead, he chose the other route because it makes my income look worse and gives him reason to file his Motion.

The Government always wins, but I will fight this one.

getouttadebt