Self Employed--Accounts Receivable

[Ineedhelp2]

My attorney tells me any accounts receivable will be claimed by the court.

I asked if billing for completed work could be delayed and he said it could not.

My business involves photography while on the road, and then I return home to work on the photographs before sending them to the customers who ordered them.

The work is mostly done in the photography stage, but all the images still need to be sorted, sometimes corrected for color, etc., and then printed or transferred to CDs.

So for example, if I did $10,000 of billable work the first two weeks of November, filed for Chapter 7 on November 15, and then finished processing the images and delivered and billed $10,000 to my customers on November 20th, am I doing anything wrong?


And just to further clarify, can work completed BUT NOT DELIVERED, be held until after filing for bankruptcy, and then delivered and billed?

For example, John agreed to do some custom work on Joe's car. Joe was in no hurry to get the car back, so there was no set delivery date.

Joe agreed that when the work was done, John would deliver the car to his house, and submit a bill for $20,000, and that he would pay the invoice 30 days after delivery.

By the end of November John was completely finished working on the the car, but he decided to file Chapter 7 on December 1st.

If he delivered the car on November 30th or before, he would have the $20,000 owed to him by John, and that would be considered an asset that the court could claim.

So John decides to keep the car in his garage and wait until after he files to deliever it and bill for it, thus not having to forfeit $20,000 to the court.

Is this ok in the eyes of the court?

[AngelinaCatHub]

HHHHMMMMMMMmmmm; interesting scenario.

In my opinion, only, your lawyer is correct. Don't fool Mother Nature or the Federal Courts. Now as far as billing or working, I am sure you are fairly fatigued by all this photography and probably could use a rest. If you took a bit of leave from your work, you would feel much better, would you not? Let's say, slow down a bit, 'life's too short". Finish later, bill later. Just my opinion. 'Hub

[Chowder]

One of the great things about indy contract, or sole prop work is you can adjust output or production to suit your circumstances.

When I filed, my current orders and receivables were pretty much in line with the 6 months average income look back.

As long as you're under medan, how can it be an issue?

[Ineedhelp2]

I'm planning on having close to zero receivables when I file, but don't want to raise any suspicions, and don't want to have anything they can tell me should have counted as a receivable.

[Chowder]

As long as your projected is similar to your 6 month look back average, and you're under median, you're fine.

A history of over median that drops to nothing may raise an eyebrow.

Being a Photo guy you may have issues with tools of the trade. I had to sell off some equipment while preparing for my filing.

[OhioFiler]

How do you account for your photography business? Is it on an accrual basis or cash basis?

[StartingOver08]

Do your clients sign contracts or orders for the photography?

I had to supply each contract (I am a Realtor) and the Trustee was very interested in the disposition of each contract at the 341. On the petition my attorney did actually state the probability of closing as some of the contracts were short sale properties with a low probablility of closing. Of course I filed when I had the least amount of outstanding contracts since 100% of the receiveable belongs to the Trustee at the time of filing.

Don't underestimate the Trustee's in this area - they know what a receivable is and will look for A/R's in your business as it is a source of income to the Trustee.

[Ineedhelp2]

I'm on a cash basis.

Could someone address my hypothetical about the car?

[StartingOver08]

There is no question that in the car example the "contract" is an oral agreement that was made initially when John agreed to do some custom work on Joe's car. You even are more specific stating that the work is completed prior to filing. Although the money is not due until after filing, that is not the test the Trustee will use. The test is: do you have a contract for incoming funds where some event must occur before the funds are paid? Once the event occurs (finishing and delivery of the car) then the funds are due to the Trustee (because the agreement was in place before the BK filing).

[Ineedhelp2]

Do I have to think of contracted work not done as a recievable too?

I have much work that was contracted that will not be done for several months, and some might not be done at all.

Some has been paid in advance.

I definately have some outstanding receivables at the moment, but by the time I would file, they'd be very low--less than $1,000.

I would have more work to bill for immediately after filing, however, but again, at the time of the filing, that work was still somewhat in process and not completely finished.

[StartingOver08]

Ask your attorney - but the relevant factor, as explained to me, was the fact that the contract was already agreed to prior to the filing date. The work can be completed before or after the filing date - but the agreement was in place prior to filing so the A/R belongs to the Trustee. The Trustee will even hold the BK open longer to allow you addtional time to complete your end of the contract so the Trustee can get the funds.

[StartingOver08]

BTW, any new work that is agreed to AFTER your filing date belongs to you. As an independent contractor you have control over when you agree to do new work.

[OhioFiler]

Do I have to think of contracted work not done as a recievable too?

I have much work that was contracted that will not be done for several months, and some might not be done at all.

Some has been paid in advance.

I definately have some outstanding receivables at the moment, but by the time I would file, they'd be very low--less than $1,000.

I would have more work to bill for immediately after filing, however, but again, at the time of the filing, that work was still somewhat in process and not completely finished.

Not on a cash basis you don't.

Here is how you need to look at this situation. Your 6 month look back period for income includes income that would have been a receivable had you used the accrual accounting method. To have used the cash basis for your last tax year, your beginning look back period THEN use the accrual method at the end of your look back period is creating too much income over that time frame. You can not change accounting methods mid-stream.