Income that fluctuates wildly

[kathy4530050]

Hi Everyone--

Has anyone who has filed Ch. 7 ever had the situation of monthly (or even annual) income that is completely unpredictable? I am self-employed and have paid almost no income tax for the past 2 years because business has been so slow. My 2008 and 2009 tax returns are pathetic. I have about $100k of cc debt accrued trying to keep the business afloat.

Now that I am about ready to file, business has really picked up. I think I need to file this month because it looks like some serious $$ is coming my way VERY soon. I can stall a little. I can file in May and then do the work over the summer and invoice in installments.

I've already paid one lawyer in full but won't be using him as I learned he is just too inexperienced with bks involving small businesses and had very few answers for me. I consulted with several others and am going with one that is very knowledgeable and experienced and I have an appointment with him for next Thursday.

I am afraid I will be forced into a Ch 13 because of some substantial checks I received in February (from delinquent accounts). I wanted to wait until September to file, but now this new project that has come in will make filing in September impossible.

Does anyone know if my lawyer can argue that my income is too unpredictable to use just the past 6 months as a look-back period? I had 6 months in 2008 where I had NO income and 2 employees. Back then, the thought of bk never even crossed my mind--I was just going to keep on struggling until I could turn this around. Well, I let my employees go, lost my house, kept on struggling, and now it IS turning around.

If my lawyer can use the past 2.5 years as a look-back period, I am way, way under the median for my state. If he uses the past 6 months, I'm in trouble.

Does anyone have any thoughts on this situation? The economy in my state (Michigan) is the worst in the nation and there is still no light at the end of the tunnel. I'm afraid that I could be forced into a Ch. 13 and then have another dry spell that will wipe me out again . . .

[fltoo]

Might have to file the 13 and then convert to the 7. If you worry too much about having to file a chap 13, you are going to miss the opportunity for financial relief and you are not going to be able to concentrate on what sounds like a great opportunity for your business.

[kathy4530050]

Might have to file the 13 and then convert to the 7. If you worry too much about having to file a chap 13, you are going to miss the opportunity for financial relief and you are not going to be able to concentrate on what sounds like a great opportunity for your business.

You're probably right. I am going to do whatever this lawyer advises, which may be filing the Ch 13. However, I'm just hoping that this lawyer can somehow ask that the look-back period be longer than 6 months . . .

[jribe]

You're probably right. I am going to do whatever this lawyer advises, which may be filing the Ch 13. However, I'm just hoping that this lawyer can somehow ask that the look-back period be longer than 6 months . . .

honestly, i have never seen anyone that was able to do that. The TT may even argue that now business has "picked up" and you shouldn't evne qualify for a 7. TT's don't bend the rules for anyone. It's all very by the book. They are not there to help you, or anyone else. There are there to find assets, really. And from your posts- it sounds like you'll have some assets. You need to remember that if for some reason the TT finds out about these future invoices- you'll be in trouble. Just be careful.

[kathy4530050]

honestly, i have never seen anyone that was able to do that. The TT may even argue that now business has "picked up" and you shouldn't evne qualify for a 7. TT's don't bend the rules for anyone. It's all very by the book. They are not there to help you, or anyone else. There are there to find assets, really. And from your posts- it sounds like you'll have some assets. You need to remember that if for some reason the TT finds out about these future invoices- you'll be in trouble. Just be careful.

I'm not sure what you mean. Today I have no assets--the money that came in in February has already been spent on 2008 Federal and State withholding and unemployment taxes for my former employees, household things, and medical expenses. I drive an 8 year-old car that is paid for. I am renting a home.

As for the future income--if I invoice in monthly installments that leave me with minimal disposable income, what have I done wrong? My income can look really strange because it is so irregular. For example, one year I had no income for 11 months and in one month I had $100,000. This was several years ago, but that is how it works for me sometimes. It is much better for me to spread the payments out. Would the trustee have a problem with this?

[mand15]

i recently had to file a ch 7. i'm a loan officer and the last 2 years have been horrific. but business really picked up a few mos ago. i filed a week ago while my income is still below the means test and my attorney said i'd be fine.

[kathy4530050]

i recently had to file a ch 7. i'm a loan officer and the last 2 years have been horrific. but business really picked up a few mos ago. i filed a week ago while my income is still below the means test and my attorney said i'd be fine.

Good for you. It's hard to undo years of bad luck with a few months of good luck.

[jribe]

I'm not sure what you mean. Today I have no assets--the money that came in in February has already been spent on 2008 Federal and State withholding and unemployment taxes for my former employees, household things, and medical expenses. I drive an 8 year-old car that is paid for. I am renting a home.

As for the future income--if I invoice in monthly installments that leave me with minimal disposable income, what have I done wrong? My income can look really strange because it is so irregular. For example, one year I had no income for 11 months and in one month I had $100,000. This was several years ago, but that is how it works for me sometimes. It is much better for me to spread the payments out. Would the trustee have a problem with this?

i'm meaning the work you have coming to you.. I believe you said it was 50,000? They won't let you spread that out; if it's due to your business; it's accounts receivable. Meaning that you are due the money- and it doesn't matter if you collect it in chunks. I am saying "be careful" because, this would be an asset, and if you try to hide it, or drag it out- and the TT finds out- you'll be in a nightmare type situation.

[kathy4530050]

i'm meaning the work you have coming to you.. I believe you said it was 50,000? They won't let you spread that out; if it's due to your business; it's accounts receivable. Meaning that you are due the money- and it doesn't matter if you collect it in chunks. I am saying "be careful" because, this would be an asset, and if you try to hide it, or drag it out- and the TT finds out- you'll be in a nightmare type situation.

Yes, I will have an agreement for 50k in May, but I don't have to do the work in May. I can spread the work out over many months. The money isn't due to the business until I perform the work and I can spread out not just the payments, but the actual work itself, over many months. The trustee wouldn't have a problem with that, right?

[StartingOver08]

The Trustee may argue that the A/R is created with the contract. This is why you need to be careful here.

[kathy4530050]

The Trustee may argue that the A/R is created with the contract. This is why you need to be careful here.

Wow. That seems so unreasonable. Just like people who receive payroll checks, I have to have income to live on--it's just that my income comes in unpredictable chunks. And I never know when more is coming in or how much is coming in. Work for me is an on-going crap shoot.

I wonder what would happen if, instead of one contract, the client and I worked off from monthly memoranda of agreement . . . nothing is set in stone yet.

[uneasy]

i'm meaning the work you have coming to you.. I believe you said it was 50,000? They won't let you spread that out; if it's due to your business; it's accounts receivable. Meaning that you are due the money- and it doesn't matter if you collect it in chunks. I am saying "be careful" because, this would be an asset, and if you try to hide it, or drag it out- and the TT finds out- you'll be in a nightmare type situation.

I don't get this. How could a trustee know what kind of arrangement this person has with a client? I have people I do business with and I might do some some work for them in January, some in May, some a few months later, etc. Every time I do work, I invoice. Will the trustee think there's something fishy if you don't invoice a client for the whole thing at one time?? I don't do all of the work at once--this doesn't make any sense to me.

[StartingOver08]

One of the differences would be with the "executory contracts". The petition is very specific about asking if the debtor has any executory contracts.

If you have a small business, the Trustee is going to be interested in your sources of income. This is how it MIGHT affect some debtors that have small businesses. I am only bringing this up because if you know about how the Trustee MAY look at something it will help you to prepare your petition appropriately so you are not blind sided. Below is a definition of some examples of executory contracts:

So what is an executory contract? The concept is fairly simple. It's a contract between a debtor and another party under which both sides still have important performance remaining. Put another way, if either side stopped performing the contract it would be an actual breach of contract.

Examples of executory contracts (and some common reasons why they might be executory) include:

Real estate leases (tenant has to pay rent/landlord has to provide space)
Equipment leases (lessee has to pay rent/lessor has to provide equipment)
Development contracts (development work required/payment required on milestones), and
Licenses to intellectual property (licensee can use only within scope of license/licensor must refrain from suing for licensed uses).

http://bankruptcy.cooley.com/2006/07/articles/business-bankruptcy-issues/executory-contracts-what-are-they-and-why-do-they-matter-in-bankruptcy/

As to how your Trustee in your district will look at it is a good question for your attorney.

[uneasy]

One of the differences would be with the "executory contracts". The petition is very specific about asking if the debtor has any executory contracts.

If you have a small business, the Trustee is going to be interested in your sources of income. This is how it MIGHT affect some debtors that have small businesses. I am only bringing this up because if you know about how the Trustee MAY look at something it will help you to prepare your petition appropriately so you are not blind sided. Below is a definition of some examples of executory contracts:

So what is an executory contract? The concept is fairly simple. It's a contract between a debtor and another party under which both sides still have important performance remaining. Put another way, if either side stopped performing the contract it would be an actual breach of contract.

Examples of executory contracts (and some common reasons why they might be executory) include:

Real estate leases (tenant has to pay rent/landlord has to provide space)
Equipment leases (lessee has to pay rent/lessor has to provide equipment)
Development contracts (development work required/payment required on milestones), and
Licenses to intellectual property (licensee can use only within scope of license/licensor must refrain from suing for licensed uses).

http://bankruptcy.cooley.com/2006/07/articles/business-bankruptcy-issues/executory-contracts-what-are-they-and-why-do-they-matter-in-bankruptcy/

As to how your Trustee in your district will look at it is a good question for your attorney.

Sometimes I start out with a client with a contract and then pieces of work just keep getting added on, but it's all verbal. I've never had a problem working this way. After awhile the original contract doesn't mean much, because the work that was on it was completed a long time ago, but I continue to do work for the client on a verbal, as needed basis.

Will the trustee have a problem with THIS if I can't come up with a contract that details all of the work I am doing or did?

[StartingOver08]

You are getting into a legal area that I have no idea about - mainly because I'm not an attorney. That is one of the reasons having an excellent attorney for your BK is important.

Personally I think this is the single most important part - your income post petition -when you are filing. A good BK attorney familiar with the in's and outs of small business owners and BK filings makes the difference between a successful filing and not.

Having said all that, in my opinion the Trustee is going to have copies of your written contracts and will look to the work and payments in the contract. Your attorney can give you guidence for your district and your Trustee.