Income and Bank Statement Questions, filing in 8 days

[meggie]

I am filing ch7 March 31st.

I have a few questions:

With my regular income I am close to the median income but still under.

The problem is I got an unexpected bonus on March 10th that puts me over.

The attorney said if I file before the end of the month this bonus income will not be included. Is this correct?

Also, I received a large tax refund of $3500 in February. Is this considered income in NC? This will also put me over the income limit if it is.

The attorney said everything would be ok but I am still very anxious about it. I have rushed together to get all of my paperwork turned in and ready for filing at the end of the month instead of waiting for six months. I am making myself sick worrying about the income.

What are they looking for on bank statements? I was planning to wait until November so there are a lot of unusual things on there (restaurants, movies, clothes, etc.) because of the tax refund and the bonus. No big ticket items just looks like we are out having a lot of fun. This was very unusual for us, most other months have been very grim. I saved all of the receipts. Is there a red flag limit like you can't spend more than $70 on such and such before filing? Just curious. I am trying to see if it would make more sense to wait until the income and spending age off.

Thanks so much!

[UghUghUgh]

Not $70. I have heard it is anything over $500. Honestly, I believe it depends on the trustee also. They each seem to have their own 'button' for things that trigger alarm.

[discouraged]

I'm not sure about the spending. I would trust my lawyer on that one I would think. As for the bonus, they look over the 6 month bank statements and that would show the real average and that the bonus was a one-time shot. It is my understanding that they are looking for high deposits and extensive spending (your $3500 is explained by your tax return).

I think they basically just are looking to see if you do qualify for a 7 and that your standard of living corresponds to your income.

My lawyer also said they only want the statement amounts from the day you file and 6 months previous (in MN, other states differ from reading the posts). The lawyer said they did not want the statement for the current month, just the snapshot on the day of filing. This could be what your lawyer means - that they would not ask for the current month when you file. I don't know why they don't want it but that's what I was told to do.

You could wait out the 6 months until your bonus and the spending drop off if that would make you more comfortable but unless you have some real concerns about your lawyer, I would trust what he/she says as this is what they do for a living.

[daylate]

Your lawyer is right-the bonus will not be included in the means test if you file in March. Only the 6 months starting with the month before you file are considered.

The refund is not income. think of it this way-you made 6k gross in the last six months-you had 1k withheld as taxes. You filed and got 500 of the 1k back -your income was still 6k-what has changed is your taxes were only 500, not 1k.

because you have already received your refund it is now considered cash, not a refund. the thing you have to make sure of is how much cash you have on hand and how much you can exempt in NC. If you have too much,spend it on necessary expenses like food,household expenses,gas,your attorney,auto repairs,next month's rent/mortgage,doctors/dentists, etc.

If you wait, I'm pretty sure the bonus will be considered in the means test. However just because you are over doesn't mean you can't still file a Chapter 7. You just have to do some additional testing. Have you used the NOLO on-line means test calculator to see if the bonus will affect you? Google it.

I don't think you will have a problem with your "celebratory spending" if it was for dinners,movies,etc but if you get a trustee from hell it could be a point of discussion. There is no law that says you can't enjoy yourself a bit.

Good luck.

[sillywalks]

Your lawyer is right-the bonus will not be included in the means test if you file in March. Only the 6 months starting with the month before you file are considered.

The refund is not income. think of it this way-you made 6k gross in the last six months-you had 1k withheld as taxes. You filed and got 500 of the 1k back -your income was still 6k-what has changed is your taxes were only 500, not 1k.

because you have already received your refund it is now considered cash, not a refund. the thing you have to make sure of is how much cash you have on hand and how much you can exempt in NC. If you have too much,spend it on necessary expenses like food,household expenses,gas,your attorney,auto repairs,next month's rent/mortgage,doctors/dentists, etc.

If you wait, I'm pretty sure the bonus will be considered in the means test. However just because you are over doesn't mean you can't still file a Chapter 7. You just have to do some additional testing. Have you used the NOLO on-line means test calculator to see if the bonus will affect you? Google it.

I don't think you will have a problem with your "celebratory spending" if it was for dinners,movies,etc but if you get a trustee from hell it could be a point of discussion. There is no law that says you can't enjoy yourself a bit.

Good luck.

Daylate --

I believe the tax refund will be counted as income -- but I understand that in many cases you can divide the refund amount by 12 months, then add that amount to each of the past 6 months (i.e. your refund was $3000, divided by 12 = $250 -- so you add $250 to your monthly income for the past 6 months). At least, that is what I have understood from my research here and elsewhere!

[daylate]

Sillywalks- Thanks for your reply. Silly me using logic to try and figure out how something would work in bk-DOH! I double checked and you are right. From what I just read, technically you are supposed to include the whole thing, but custom has permitted what you describe. I still don't understand the logic. if you file in March and just got a refund, your means test includes the last 4 months of the prior year. You have already included the gross income from those four months. It would seem me that a better way would be to reduce your taxes for the period. Which net has the same effect- a higher after tax income. Hmmm, I guess I can now see the logic. Thanks for making me think at 5 am. LOL.

[tcreegan]

Hi all,

I still don't understand the logic. ....don't worry daylate, there isn't any

Only half joking there though, be careful using IRS tax logic in a BK. When they say "any and all sources of income" in the BK, they mean it literally.

Also wanted to get word out that some states exempt portions of tax refunds, here in Colo the EIC and Child Credit portions are exempt.

(somewhere in the dim recesses of my memory, I think at least one state exempts the whole thing explicitly)

Something else that just lifted its ugly head from my memory....a poster here had a trustee look at the paystub and count unused vacation days as "earned but unpaid wages" and wanted a chunk of it. If I remember right, that cost them some $

...I'd better quit before I think of anything else scary...

Tom in Colo