10 month salary vs. 6 month lookback

[ddddougggg]

What do you all think/know about this?
I'm in CA and considering filing Ch. 7 pro se. Here's my situation:

I am a teacher and get paid 10 months of the year. I have no salary in July and August. If I file in March and the lookback does not include any of the no-salary months, my income will be greatly inflated because it is 1/10 of my income, not 1/12 and I would fail the means test. Essentially it would lead the trustee to believe that I make 16% more a year than I really do. Does anyone know if trustees in my area (Southern California) tend to understand this payment cycle for teachers and allow us to take our actual annual salary and divide it by 12?

I'd love to just be able to file now, but last summer, things were bad and my M.I.L. sent us $20k (she's amazing!) to see us through and that would cause us to fail the means test too. That means I have to wait until March 1 to file so that a check deposited in August will not show, right? The cash is long gone so exemptions are not a problem.

Any advice or experience you could share would be great. Thanks so much.

-Doug

[berkeleygl]

I don't have any experience with the salary issue (though I would think it comes up often enough that trustees have a way of dealing with fairly), but my MIL also gave us roughly $17K this past year to help us out. Our lawyer is just having us list them as a creditor, treating the $17K as a loan. We have joked with my inlaws that they should show up at the meeting of creditors...

[ValleYum]

Hello and welcome! There is a plethora of knowledge here!

I looked around and found this March 29, 2010 article on the internet:

Annual Bonuses Shall be Pro-rated Over 12 Months for the Bankruptcy Means Test

A recent case from Virginia looked at a debtor who received an annual bonus in the six-month pre-petition means test period. The court held that the bonus should be pro-rated over a 12-month period to determine the amount necessary to calculate the debtor’s “current monthly income.” In re Meade, —— B.R. ——, 2009 WL 4456211 (Bankr. W.D. Va., Nov. 13, 2009).

The court concluded that the language “average monthly income,” which is found in Bankruptcy Code section 101(10A)(A) is susceptible to two interpretations. One of them is the mechanical example I gave above, which can result in either a harsh result to the debtor or a windfall.

However, the court adopted a different, more realistic “common sense” interpretation, which the court said was more in keeping with what appeared to be the overarching purpose of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, namely, to require debtors to make meaningful payments to their creditors if they have the funds to do so.

The court felt that Congress intended for there to be some connection between the compensation received and the period of time in which the applicable services for such compensation were rendered.


With regard to the concept that under any different interpretation, debtors’ attorneys would want to time the filing of their clients’ cases, the judge said, “It is difficult to believe that Congress intended such a result or desired to encourage such tactics.”

A Teacher’s Income Is Not Pro-rated for the Bankruptcy Means Test

The Meade case also addressed the wife’s income, who, as a public school teacher, received her annual salary over a ten-month period.

Here the court took a totally different approach by refusing to pro-rate the wife’s income. The court said that this situation was well within the framework provided by Congress of looking to the income actually received during the six month period prior to bankruptcy as the best measure of a debtor’s ability to pay creditors.

http://longislandbankruptcyblog.com/income-bankruptcy-means-test-purposes-decisions-define-income/

I hope that explains about teacher's salaries for you.

I am fairly certain that the $20,000 from your MIL- if it was a gift - would count as income and should be reported on Line 10 of your Means Test. If you fail the Means Test, it is still possible to attempt a Chapter 7 case using the 'totality of circumstances'. What is your disposable income like at the end of every month?

If it was a $20,000 loan - could you not just list your MIL as a creditor?

You can search on here for more info and I am sure some of the more knowledgeable posters will chime in!

Good luck!!

[daylate]

If it was a bona fide loan there would be a signed note with a stated interest rate...just sayin'


and as to not prorating a teacher's salary over 12 months-that is asinine although what can you expect from Congress and the courts. But I guess since every district looks at things differently, your district could let a 12 month allocation fly-check with the attorney

and even if your income is above the median have you checked to make sure you still don't pass the means test when you consider your payments?-I assume you have but asking just in case.

Good luck

[AngelinaCat]

You may need to wait six months or a little more before filing, so that the 20k loan/gift falls off the radar. We get a yearly stipend of about 20k from a Retirement Trust each January. So we had to plan on waiting until at least July before we could file. As it happened, our attorney dragged her worthless feet until the last business day of the year, Dec. 28, 2007, when we INSISTED that she file. Otherwise, we would have had to wait until July of the next year, and we had a couple of creditors with lawsuits pending.

As for the loan/gift, as another poster said, you can treat it as a loan and list her as a creditor. Just don't make any payments to her until after you are discharged. If it truly is a gift, just list it as a one time gift, and wait the six months.

[free2breathe]

If it was a bona fide loan there would be a signed note with a stated interest rate...just sayin'

Most loans from friends or family members don't come with a contract. Just sayin' ;)
They still qualify as a loan when you file bankruptcy, and you technically must list them. So waiting, like Cat said, until a reasonable amount of time has passed since you've put it in your bank account is always good practice.

[Memphisbelle]

Actually your case seems similar to mine. I work at a University and my salary was reduced to 10 months and my mom gave me $20,000 to begin the process of building herself a house on my property. I am in the process of interviewing lawyers and running theses issues by them. They both said it is best to wait until those deposits from mom are at least more than 6th months old. While they are completely legit and considered a GIFT not having them in your 6th month bank statement saves you from a lot of explaining and providing proof etc and therefor saves you major headaches proving something is legit. She said I wouldn't even ever have to include my moms moneyas any kind of income because it was an event and not a regular monthly deposit. So, I don't even need to list it in the "other income in six months. YEA, never even have to mention it!!!!

As for the 10 month salary she said they will look at what you made the prior six months and not prorate it.

I am waiting till six months are past which is FEB and lucky for me, capture one of the months I didn't get paid and I only got one paycheck (I get paid by-monthly) the next month. So, I have no income to report for 1.5 months in the six month look back. So between now and then I am preparing to to file and not paying the credit cards. I also like using my tax return from this year and not last yr which I will be able to do because I can have 2010 file by FEB 2011.

Hope this help you. I am filing in WA

[ddddougggg]

Thanks for the advice so far. It's all so frustrating. Why is it that the BK courts can understand a bonus is good for the whole year, but a teacher's salary, which is a pretty stable and predictable thing is not. Grrr. I really don't want to wait until summer to do this thing. Valleyum, I saw the same thing you did, but I was kind of hoping different district, different state would make a difference. Does anybody have any experiece with this in CA?

[tcreegan]

Hi all,

Hi ddddougggg,

Since you mentioned you were thinking pro-se, do you have the NOLO book? www.nolo.com Apparently a 'must have' for pro-se filers. There is also a separate forum for pro-se folks. Understand the frustration with the process not being fair or even making sense sometimes...grrr is right. Couple rays of hope maybe....the case ValleYum posted was not in your judicial circuit, you can research cases in your circuit and see if you can find any rulings in your favor closer to home. Failing the means-test might not be the end of the Ch 7 world, what might end up being more important is your disposable monthly income (DMI) from schedules I & J If this DMI is in the tank, you can invoke "special circumstances" on the means-test result.

Another thought (going for the record here)....are you still over median after all the allowed deductions? (Part V & VI) ?

Well, hope some of this is helpful, keep posting and let us know how you are doing, lots of good folks here to help out!

Tom in Colo

ps: Good to see you making progress MemphiBelle!

[Memphisbelle]

Hi. Both lawyers I talked were clear with me that that $20,000 would be considered a gift and NOT income because it was an event and not a regular deposit. Maybe it would be worth meeting with an attorney for a free consult or for an hour fee to talk about how to verify this in you six month bank statements. Find out what you do to prove this if you need to file soon. I was so stressed about that deposit and they both treated it like was nothing to worry about. But then again that is why I am paying a lawyer and not going it alone...not to worry. I know I could do it myself but I am scraping the $'s together to save myself this added stress. I wish you the best.