Income After You File

[BKINAZ]

IF...I file chapter 7 on September 1st and I get income on November 1st...am I screwed on any level?

Long story short...my client (who shut down operations this year and why we are in this situation) pays me in three installments, and they cover my expenses for them two months at a time. ie...they pay me $50k and $40k of that is true hard expenses for them over those two months.

They MAY start their business back up...so...if we file on SEPT 1...that money (the large amount) cut to me on Nov 1st can't be taken can it? Can that $10k I make for the months following September ($5k oct, $5k nov) hurt me?

[OhioFiler]

No.There is no exposure for you.

Don't spend it yet though. Make sure they really are back in business first.

[BKINAZ]

So on the day we file...what we have $$$...is what we are judged on regardless what happens in the future? Whatever the future may be?

BTW...thanks for the quick response!

[BKINAZ]

I am bumping this because I would like someone to confirm OHIO...not that I really doubt him, I just tried explaining it to my wife and I didn't believe myself when I said it. lol I think I overreached and said I could win a million dollars after we file and the BK would go off of what we had when we filed. That just can't be right...can it?

We wouldn't be granted a discharge I would think...so same question...I make $10,000 two months after we file...does our Chapter 7 get denied?

[JRScott]

There is some danger.

In your 341 meeting the trustee will ask Has there been any changes?

You are under oath when you answer him.

Now assuming you file in September, your 341 should be in October which means if you don't get the check/funds til November you'll be okay. However if your 341 is continued for any reason and it is still going on after the date you get the funds and the trustee asks the question again you have to tell him of the change.

This is something you need to discuss with a lawyer to see if it will be a hang up for your filing.

[OhioFiler]

There is some danger.

In your 341 meeting the trustee will ask Has there been any changes?

You are under oath when you answer him.

Now assuming you file in September, your 341 should be in October which means if you don't get the check/funds til November you'll be okay. However if your 341 is continued for any reason and it is still going on after the date you get the funds and the trustee asks the question again you have to tell him of the change.

This is something you need to discuss with a lawyer to see if it will be a hang up for your filing.

Making $5,000 in October and $5,000 in November is not a change. This is the same ongoing business he's been doing for some time. Nothing has changed.

[BKINAZ]

Interesting (informative) responses from both. Thanks. That helps a lot...

Ohio I would say the $5,000 per month addition would be new vs say the last 6 months...but very much normal for the past 10 years prior to these past 6 months. In addition...whether it matters or not it's not guarenteed income, so my only acknowledgement would be the money that I could honestly say that I paid myself with at the time. There are unforseen expenses in my business that could actually delay income till a later date and cut into the intial money they give me and who's to say they don't go out of business again by the time my money is due?

[SuzieBK]

On a similar note, can someone give me the definitive on when you count income: (1) when the work is done; (2) when the work is billed; (3) when you receive the check?

[reeltrouble]

If it helps... From what my atty explained to me, anything after the date you file doesnt matter. You could win the lottery the day afterwards, and still keep all the winnings, as long as you purchased the ticket AFTER filing.

Just passing along what I was told!

[OhioFiler]

On a similar note, can someone give me the definitive on when you count income: (1) when the work is done; (2) when the work is billed; (3) when you receive the check?

As an individual you account for your income on a cash basis meaning it's considered yours when you receive the payment.

If you have a business and operate on an accrual basis your receivables (the money your clients owe you for work or product you already provided them) are an asset.

Many sole proprietors operate on a cash basis rather than an accrual basis so the recognition of income is on receipt of the payment.

The IRS allows you to choose the accounting method you wish to use (cash or accrual). I suspect the BK courts look at you the way you file your taxes with the IRS. I can't imagine the court forcing you to change accounting methods.

[StartingOver08]

As an individual you account for your income on a cash basis meaning it's considered yours when you receive the payment.

If you have a business and operate on an accrual basis your receivables (the money your clients owe you for work or product you already provided them) are an asset.

Many sole proprietors operate on a cash basis rather than an accrual basis so the recognition of income is on receipt of the payment.

The IRS allows you to choose the accounting method you wish to use (cash or accrual). I suspect the BK courts look at you the way you file your taxes with the IRS. I can't imagine the court forcing you to change accounting methods.

Well, the Trustee may look at it a little differently. I know that in my case the Trustee said ALL RECEIVEABLES belong to the BK estate as of the date of filing. I had to list each receivable (BTW, I am full commission real estate sales). So the money was considered earned as of the contract date and natually not received until the closing date. In my BK there were 'earned receiveables' that were not paid yet as the transaction did not yet close. Naturally I filed with a minimum of outstanding closings Ultimately, the Trustee got nothing because the two outstanding closings as of the date of filing 'died' before closing. BTW, my books are on a cash rather than accrual basis. Yes, I know this flies in the face of how the IRS looks at it - but keep in mind the Trustee has the final word on your BK estate.

[OhioFiler]

Well, the Trustee may look at it a little differently. I know that in my case the Trustee said ALL RECEIVEABLES belong to the BK estate as of the date of filing. I had to list each receivable (BTW, I am full commission real estate sales). So the money was considered earned as of the contract date and natually not received until the closing date. In my BK there were 'earned receiveables' that were not paid yet as the transaction did not yet close. Naturally I filed with a minimum of outstanding closings Ultimately, the Trustee got nothing because the two outstanding closings as of the date of filing 'died' before closing. BTW, my books are on a cash rather than accrual basis. Yes, I know this flies in the face of how the IRS looks at it - but keep in mind the Trustee has the final word on your BK estate.

That trustee was obviously wrong. Those were not earned commissions. I would have had an attorney fight that if the trustee tried to take those commissions. You indicate yourself the commissions never materialized.

I too am a commissioned sales person and every lead I have is a potential earned commission. However, until the deal is signed and the product delivered I would not consider it a receivable. Even my employer indicates the payments I receive on the sale are advances.

Most filers have earned income on the date of filing. I suspect more people than not file the day before payday than the day of or after payday. I see no difference between those earnings due and potential commissions payable to you.

[StartingOver08]

OhioFiler - the contracts were signed and closing dates set, but not met. Obviously leads aren't earned commissions! Usually your information is dead on...but in this case I have to go by my experience with the process, which may or may not have been typical. I don't know because I have only filed once and do not have the benefit of many cases from which to draw conclusions. I only know how our district is responding to the many real estate agents filing here.

Maybe our district handles the earned commission thing differently than yours - but I was not going to state under oath that I had no pending closings when I did have pending closings. We just updated our petition when the deals fell through - believe me, my Trustee asked every sort of question pertaining to income in the 341.

[OhioFiler]

Maybe they scrutinize realty professionals differently assuming you may try to delay closings. Just seems odd to me that you would be singled out for earned but not payed income when it seems rarely to be the case. Especially in the situation you described given you were never paid on those contracts.

I guess I'm glad those deals fell through for you! I hope you were able to recover them and complete the sales later!

[SuzieBK]

Unfortunately for me, my "books" (okay, it's an Excel spreadsheet) are set up on an accrual basis.

I am not trying to suborn perjury or fraud , but I do have a question. In the following situation:
* Sole proprietor, working alone out of a home office
* Taxes are filed yearly because my husband over-withholds to cover my not having anything withheld (and I don't make enough for the IRS to care)
* Only other official paperwork on me is the 1099s filed by my clients

Other than deposits into one of my bank accounts, how could anyone track exactly WHEN I did the work?