FSA's and 401K's in a Chapter 7

[JEM]

I haven't researched this because it hasn't been an issue for us, but may be now.

Dh's company is changing their benefits this year, so starting the first of the year we'll probably be doing both.

How are these treated in a Chapter 7?

We'll probably only contribute $1300 this year to the FSA. But if I understand correctly, we'll get a "debit card" with the full amount right away. That means an extra $208/mo. will be taken out of dh's paychecks. Is this allowed as an "expense"? Secondly, is the money in their an "asset"? Third, are we then not allowed to take any medical expense deductions on our budget? (Even though we will spend more than $1300 next year)

On the 401K's...we'll probably only contribute $25/mo. this year. Is this allowed as an "expense"?

[JEM]

Bump.

Excuse all the typos in the original post. ;)

[SunshineGal]

At $25 per month, the trustee probably won't give you a problem for the 401K. We were advised to stop our IRA contribution because we can't fund our retirement to the detriment of our creditors. As long as you include the contributions to the FSA in your medical expenses you should be okay. But, I'm not an attorney.

[DebtHater]

When you file, you're Schedule J is to indicate your actual average monthly medical expenses. Not what is deducted from your pay. As an example at the time I filed I figured on an average medical expense of $200/month.

I did not include mine as an asset as mind was long dried up by December. You can't claim money as an asset that isn't there even though it was still getting deducted from payroll.

My FSA account is $1000/year, purposely less because what you don't use, you lose. At $1000/year my payroll deduction was $21/week or dividing the full amount by 12 would be $83/month. The $83 amount went into my Schedule I as a payroll deduction.

In your circumstance, being your total annual FSA is $1300, I would include $108.33 under item 4 of your Schedule I and what ever your actual monthly medical expense in your Schedule J. To get this number you can total the last 12 months of your medical expenses and divide by 12.

To answer your question about the FSA, the money is withdrew from my account in the form of a debit card that you use as a credit card in doctors offices and pharmacies. You will have access to the full amount immediately effective January 1.

I do not know if it is an exempt item as there was no value at the time of my filing.

The 401K is an allowable expense. The full amount of my account was included in my Schedule B and the amount that is deducted from payroll on a monthly basis in my Schedule I.

[debee]

FSA doesn't count as expense on the means test (if you have to do it) where you'd use your actual medical expense. On schedules I/J make sure you don't double dip. If you deduct the FSA amount from your monthly income, the difference between that deduction and your actual medical is what you would get to list on schedule J.

Suddenly starting to make contributions to a 401K prior to filing bk is a red flag. Normally you want to show a history of doing it. $25 is not a lot of money, but if that's all you'd need to add to your bottom line to get shuffled into a chapter 13, it could be an issue.

I would make sure the rest of your I/J works out so that you can back the $25 new 401K money out and still not qualify for a 13.

[tcreegan]

Hi all,

Awhile back I opined that an FSA should be treated the same as an HSA in a BK and was promptly trounced for it.

The means-test specifically mentions HSA on 34c, but I thought, HSA, FSA, whatever, they are birds of a feather...and since FSA is a newer beast than an HSA maybe the forms just weren't updated. Now that I am more learned....the UST says HSA on line 34 and FSA on line 19 ...big whoop...

I agree w/ debee, on schedules I/J just make sure you don't 'double dip'

If the 401K contributions are voluntary, the UST says you can't use it on the means test. Apparently involuntary is OK.....

On schedule I you might want to be careful, I have read more than a couple cases where the Judge was not happy about voluntary 401K contributions...

And the last morsel I have, while the $ actually in the 401K is exempt (well up to a million anyhow) the federal exemptions specifically did not include HSA, FSA but many states have made them exempt under state rules (such as Texas)

Just my 2 cents worth....well OK more than 2 cents, maybe a nickels worth...

Tom in Colo

[debee]

....the UST says FSA on line 19 ...

Line 19B is the national standard healthcare amount. Line 31 is for amounts exceeding the national standard amount on line 19 and not reimbursed by health insurance. (Expenses like copays which are reimbursed with an FSA).

Edit to add: http://www.justice.gov/ust/eo/bapcpa...ne_by_line.pdf

[tcreegan]

....dang it! Thanks debee, totally read that wrong...

...good thing you are around here to keep me straight!

[debee]

lol, Tom. I really like your attitude in general and all the help you give people here and your overall upbeat, friendly approach. Even when trounced a little.

[JEM]

A couple of responses...we didn't elect to do the 401K because it was going to bring our DMI down, mostly because we've put it off FOREVER...and wanted to start finally contributing. Even if it is only $25. This month is enrollment--so if we didn't do it now, we'd have to wait another year. If we have to "absorb" that in some other category, we're ok with that. I just wanted to get an idea of what was allowed.

As for the FSA. It seems the consensus is that they are not an asset that the trustee could take. I mean, I guess I don't see HOW they could. From my understanding, the funds will have to be used for ONLY medical expenses, co-pays, prescriptions, dental etc...It's not like they could take it an pay creditors. Correct?

As to the "double dipping".....that brings me to another question. I need some dental work. Necessary work. I have a tooth that broke. I tried putting off getting a crown and build up tooth. But now it needs to be done. Neighborhood of $1100. That figured in will put us over the $240 out of pocket medical for a family of 4. How much is being over the medical allowance going to raise flags? I can back up the expenses (I have a chronic kidney condition and take 3 medications for this--as well as doctor visits and lab work a few times a year). Dh and ds wear glasses, add in dental and the occasional sick visit for the kids and we're over $240 month--probably by about $100.

[SunshineGal]

Hi Jem,

I'm in a different state, but here is what I did. I got online and printed out the claims history through the insurance company and took the monthly average. I then got a print out from the dentist as to everything we've had done, and an estimate of what we still needed, I think we used a 5 year average on the major dental. Finally, I figured out the annual costs for glasses, contacts and OTC meds, and got the monthly average. I then added the 3 together for the means and schedule J. We were way over the IRS medical and nobody questioned it. However, I should also add that had they questioned it, I had complete documentation to prove it.

SG

[JEM]

Hi Jem,

I'm in a different state, but here is what I did. I got online and printed out the claims history through the insurance company and took the monthly average. I then got a print out from the dentist as to everything we've had done, and an estimate of what we still needed, I think we used a 5 year average on the major dental. Finally, I figured out the annual costs for glasses, contacts and OTC meds, and got the monthly average. I then added the 3 together for the means and schedule J. We were way over the IRS medical and nobody questioned it. However, I should also add that had they questioned it, I had complete documentation to prove it.

SG

I have saved receipts for everything. So that's good. Every time one of us have gone to the doctor, or had to fill a prescription, I've kept the documentation.

The dental, I wasn't sure how to treat that since I may not get the work done before we file. But it will definitely affect our medical expenses going forward.
Dh said he thinks he needs to have a tooth filled as well. So ya, I'm dreading the dental expenses this year. LOL

Good to know that the trustee shouldn't give us a hard time with the medical, especially with documentation. I mean, as far as my kidney condition, I could technically go back and get a lifetime of documentation since I've been treated for this since I was THREE. LOL. (I'm 37 now)

I will be so thankful when this whole thing is OVER. It's gone on much longer than we ever thought it would. This time last year, we were sure we'd have filed long before now.

[backtoschool]

FSA doesn't count as expense on the means test (if you have to do it) where you'd use your actual medical expense. On schedules I/J make sure you don't double dip. If you deduct the FSA amount from your monthly income, the difference between that deduction and your actual medical is what you would get to list on schedule J.

Suddenly starting to make contributions to a 401K prior to filing bk is a red flag. Normally you want to show a history of doing it. $25 is not a lot of money, but if that's all you'd need to add to your bottom line to get shuffled into a chapter 13, it could be an issue.

I would make sure the rest of your I/J works out so that you can back the $25 new 401K money out and still not qualify for a 13.

I agree with debee. You cannot double dip with medical expenses and count both the medical expenses and the FSA. Use the actual medical expenses on your schedules. I also agree that 401k contributions are a red flag, and many trustees still object to them. (although they often lose the objection) If you are over the median income then the trustee will look at your 401k contribution and see if it is enough to kick you into a chapter 13 if taken out of your schedules.

[BKlooker]

Just wanted to drop my 2 cents in on the FSA account. I think this is one of those things that may vary a bit from state to state and Trustee to Trustee. I don't have one at this job but i did at my last. I asked my lawyer out of curiousity about it, in relation to medical expenses because i have excess medical expenses myself.

He said as long as you have had the FSA for a year or more (and have documentation to support it), AND you have medical expenses that exceed what you are paying FSA, you could include the FSA account and the difference on the medical, but you have to have documentation to back it up. And no, they can't take what's in your FSA account to pay creditors.

But he said in most cases he would advice again listing the excess medical if you have an FSA account because like others said, it's a red flag that is going to raise eyebrows, so why draw the extra attention? As long as that's not the only expense tha seperates you from a CH 13, it shouldn't matter enough to leave it off, in most cases.

[JEM]

Just wanted to drop my 2 cents in on the FSA account. I think this is one of those things that may vary a bit from state to state and Trustee to Trustee. I don't have one at this job but i did at my last. I asked my lawyer out of curiousity about it, in relation to medical expenses because i have excess medical expenses myself.

He said as long as you have had the FSA for a year or more (and have documentation to support it), AND you have medical expenses that exceed what you are paying FSA, you could include the FSA account and the difference on the medical, but you have to have documentation to back it up. And no, they can't take what's in your FSA account to pay creditors.

But he said in most cases he would advice again listing the excess medical if you have an FSA account because like others said, it's a red flag that is going to raise eyebrows, so why draw the extra attention? As long as that's not the only expense tha seperates you from a CH 13, it shouldn't matter enough to leave it off, in most cases.

I'm not sure I understand this.

Our numbers are approx. as follows...we will begin putting $1300/year into a FSA (starting Jan). That's $108/mo. Our actual medical will probably be really close to $340/mo. I could document it. So could we not list $230ish on our Schedules as well as the $108/mo. that would come out of dh's check for the FSA? We would spend all of that, easily. So, it's not like we're trying to claim more than we spend. We're just trying to get a little tax break by using the FSA.

I've got a call into the attorney, so hopefully he can answer some questions about how this is treated in our area by the trustees.