Income definition for means test

[browneyes]

Three scenarios:

1. Selling an asset
2. Borrowing against 401 k or life insurance
3. Insurance proceeds due to property loss (not entirely replaced)

Thanks.

[browneyes]

Okay, I have been looking online and still have found no real clear definition. Looking at this point at mostly the sale of an asset. Thanks.

[JEM]

Okay, I have been looking online and still have found no real clear definition. Looking at this point at mostly the sale of an asset. Thanks.

Curious about this too. I will be asking at one of my initial consults for a clear answer.

We sold a vehicle for $2000 in early Nov.

(It was fair market--Kelly Blue Book value)

[catleg]

The classic example is selling stock and yes that is considered income.

If you sell property with a loan against it, presumably the "net cash" is what they would look at.

The 401k loan used to be considered income but I'm not so sure anymore.

[backtoschool]

All three of those examples would be income.

[albacore44]

All three of those examples would be income.

not necessarily. It is district specific. had a long talk with my attorney (and he is a good one) about this. I'm in the Ca central district.

I suggest you find the best BK only attorney you can find and he will know the rules for your district

[browneyes]

Selling an asset

The way I think about it, selling an asset is converting it to a liquid asset -cash. So you still have the asset, but now it's cash. I would think that would be more of a balance sheet transactions (assets/liabilities) rather than income.

[backtoschool]

not necessarily. It is district specific. had a long talk with my attorney (and he is a good one) about this. I'm in the Ca central district.

I suggest you find the best BK only attorney you can find and he will know the rules for your district

The only one of the three examples that might be district specific would be the 401k loan. Selling an asset is income in all districts and having left over cash from an insurance payment would be a cash asset, and would be an asset in all districts.

I agree that there are some districts where 401k loans are not considered income. In my district they are.

[albacore44]

I agree that there are some districts where 401k loans are not considered income. In my district they are.

Or 401K withdrawls.........at least in my district

[backtoschool]

Or 401K withdrawls.........at least in my district

Yes I agree, 401k withdrawals are considered income in only some districts and not in others. In my district 401k withdrawals are considered income.

[JEM]

Hmmm, I asked one of the attorney's on the phone yesterday about this...

I told him we sold my husbands truck for $2000 (FMV) back in November. Told him that we'd used the money for living expenses, paying bills etc...and asked if that is considered "income" in the 6 months look back and he said no.

ETA: He said it would have to be disclosed that we sold it, but it would not be considered "income".

[browneyes]

Hmmm, I asked one of the attorney's on the phone yesterday about this...

I told him we sold my husbands truck for $2000 (FMV) back in November. Told him that we'd used the money for living expenses, paying bills etc...and asked if that is considered "income" in the 6 months look back and he said no.

ETA: He said it would have to be disclosed that we sold it, but it would not be considered "income".

We did the same thing (FMV $1000) and used it for expenses. To me it seems like basic accounting - conversion of an asset from hard to liquid. I don't see how it must be counted as income.

[backtoschool]

Hmmm, I asked one of the attorney's on the phone yesterday about this...

I told him we sold my husbands truck for $2000 (FMV) back in November. Told him that we'd used the money for living expenses, paying bills etc...and asked if that is considered "income" in the 6 months look back and he said no.

ETA: He said it would have to be disclosed that we sold it, but it would not be considered "income".

If it is past the six month look back period then it is not income. If it is within the six month look back period then it is averaged out in the six months and it is income. Your lawyer probably meant that since it is not recurring income that you would not have to count it for the means test, but most, if not all, trustees ask for bank statements going back a year or more at your 341. Many trustees, if they see a large amount of money enter your bank account, will want to know what it is for, and will ask you at your 341. If you tell them it was a payment for something you sold, they will consider it income. This becomes moot if you are well under the median income though.

[browneyes]

I would be curious of what any mod's opinions are on this subject.

[JEM]

If it is past the six month look back period then it is not income. If it is within the six month look back period then it is averaged out in the six months and it is income. Your lawyer probably meant that since it is not recurring income that you would not have to count it for the means test, but most, if not all, trustees ask for bank statements going back a year or more at your 341. Many trustees, if they see a large amount of money enter your bank account, will want to know what it is for, and will ask you at your 341. If you tell them it was a payment for something you sold, they will consider it income. This becomes moot if you are well under the median income though.

We'll be "under" the median, but not "well under."

So if they use it to count as income--and use that to figure DMI--how does that impact you if you get pushed into a chapter 13?

In our case, we sold a truck for $2000--if you divide that by 6...it's an an $333/mo. seen as "income".

If they figure our repayment plan on that--that's money we won't really "have" over the duration of a Chapter 13.

Did that make sense?

So if we sold the truck in November--we'd have to wait 6 months for the truck to not be considered income, or a year?