Introduction & Question on Cash Gift...

[brokeasajoke]

Hello all,
I've been lurking around here for a few weeks and I've really learned a lot from you'll... I'm anticipating filing Chapter 7, I'm over the median income roughly 12K right now, I am the sole earner in my home, wife & 5 kids, 1 is disabled...

I've searched on this and haven't been able to find a definitive answer one way or another so here goes:

I stopped by my mom & dad's house tonight and told them of my impending BK. They were very understanding, even to the point of writing me a check for $2,000.00 to cover the cost of a lawyer...

My question now, is this considered income for the means test? I haven't cashed the check as of yet and I've not spoken to a lawyer about it either. I am planning on retaining one in the next couple of weeks. All the ones that I've spoken to said they didn't anticipate an issue with Chapter 7 but I'm obviously nervous about it.

Any ideas on it? Sorry for the long post.

[eddiep]

My lawyer says a gift from family is not considered income but others here have told me it is... This may be a local thing. To be safe, your parents could write the check out directly to your lawyer or any other expense it may cover. if you are close or over median it may be better to not cash it, because if it does count you may have to wait 6 months for this "income" to fall off! Ask a local lawyer before you cash it.

[music12]

have your parents write the check to the attorney directly when you decide to hire them. then the attorney fills out some form that says what their fees were and who paid them. i don't think it would be considered income this way. but ask a lawyer.

[AngelinaCatHub]

I agree with the two posters above. You received money. That is income. If you put it in your hand, it is your wealth.

The IRS sees it this way, if you have a retirement (401K) and move it to another entity (IRA) if you even touch the check yourself you pay interest and penalties. It must be transferred by the agencies without your possession in any way.

If your parent wish to help you, have them pay the lawyer directly and stay out of the loop. I advise that they pay him in agreed on payments and not all up front. You may get better service from the lawyer. There have been some real horror stories here about some lawyer. 'Hub

P.S. Also, your Trustee at 341 may ask if you received any insurance, inheritance or gifts from family. Be completely honest and explain that the parents are making "payments" directly to the lawyer to help you out as you HAVE NO MONEY.

[Amy26]

My lawyer also told me that it was a "gift" and not income. My mother gave me some money to help pay for the lawyer as well. And the IRS doesn't treat "gifts" as income... if someone gives me 100 bucks for my birthday it certainly doesn't go on my taxes. If someone gave me 100,000 dollars...then ... perhaps that would.

[justbroke]

I stopped by my mom & dad's house tonight and told them of my impending BK. They were very understanding, even to the point of writing me a check for $2,000.00 to cover the cost of a lawyer...

My question now, is this considered income for the means test?

Being the hypertechnical person I am, this is income. The definition of income (current monthly income), is money received from all sources (period). The only money that doesn't count is money received from a Social Security Act related program (SSI, SS), and some obscure war-related benefits.

Now, if you want the other hypertechnical definition, for the IRS, any individual taxpayer can give gifts of under $13K per person per year to anyone without taxation. However, the IRS definition and the Bankruptcy definition is different. The Bankruptcy definition of "current monthly income" even includes a statement that it's all income regardless of whether it's taxable. This clearly tells me that it doesn't matter who the money came from.

Your lawyer may have a different view, but that's the technical view of income in Bankruptcy.

[Chowder]

My lawyer also told me that it was a "gift" and not income.

Yes and no. My folks gave me $80k last year. Accountant and Attorney said it's a gift. Not taxable income, but income none the less.

It's an asset just as if someone gave you a $2000 car.

[Amy26]

Well nevertheless, that's what my lawyer said and didn't include a few thousand dollars the family gave me to help support myself when I was unemployed. Wouldn't have pushed me over the median anyways, so I guess its not a big deal.

[brokeasajoke]

I emailed the lawyer today. Basically, she said the same thing. She was out of the office today so she didn't have my file in front of her... Not knowing how close I am to pass/fail of means test, she told me to tear up the check and get my folks to rewrite the check directly to her firm, bypassing me. I will get them to write 2 checks, 1 for retainer and one for the balance. Hopefully that will work. I'll try to keep you'll posted on it.

thanks for all the suggestions and direction!

[brokeasajoke]

Spoke to the lawyer again today. She was back in the office. Also heard from another that I'd consulted with. They both said basically the same thing:

They would be able to claim such an "event" as a one time gift and exclude it from income. Beyond that, they said that given the fact that it would fall after my 6 month look back window on the means test, it would be a moot point. I'll be using Jan - June for my means test. It just so happens that my tax with holdings combined with the timing of the MASSIVE paycut I took in Feb. make that more appealing of a time frame than Feb. - July would be.

They both said that in the documents, they would disclose the gift for what it is and how their fees were paid. I'm headed there tomorrow to get the ball rolling. I should be able to file by month's end.

[PeteMoak]

brokeasajoke

Take the money back to your parents and have them pay the attorney directly. That is not income to you. Your attorney will report in the petition that the fee was paid by another and indicate the name of the person who paid the attorney. As long as the person paying the attorney understands that you are the client of the attorney and not your parent who paid the fee and also that the money given to you, the debtor is not a debt which can be enforced, payment by a third party is acceptable.

[poorold]

can you save the $2k quickly due to not paying any of your bills?

[Calthius]

2K from parents is not considered income. It is a gift. Under IRS guidelines Gifts to $13,000 are not income this was also confirmed by my lawyer. As my Parents helped us out and gifted $2,000 for a down payment on a van about a month before we filed. It isn't included as income for BK or for Tax info.

[laurannm]

A fairly easy solution to this is to list your parents as creditors on your BK paperwork. They will get a notice of your filing and your 341 meeting, and be treated just like any other creditor.

[Tbornetun]

OP said their income was 12k and they have a wife and 5 kids. Whether it is income or not isn't going to matter. They are well below the median no matter what state they are in.