Bonus Pay after filing Chapter 7

[KAM465]

I am curious how bonus pay will be treated if received after filing chapter 7 ( 10/29/2011)but before my 341 meeting (12/19/2011)? Of course I will report this to my attorney and the trustee as required.

When I filed my Chapter 7 I was not expecting to receive any bonus pay, but I recently found out that my company may still pay one out. Although the company is profitable, we are not in the normal range where they share in the profits via a bonus to all employees, the President/CEO of the company lobbied our board of directors to pay one out and it was approved. It will be paid before the end of the calander year, most likely before I attend my 341 meeting.

I expect to receive in the neighborhood of $1200 (before taxes), most if not all of this will probably be applied to cover my 2011 Federal (under withheld) and Local Taxes that are not deducted from my weekly pay.

[despritfreya]

Post petition earnings are not property of the Chapter 7 estate. Unless you had a pre petition contracted right to the bonus (like a percentage of profits), you keep the bonus.

Des.

[helpmeout]

I received a sizeable bonus the day after I filed (it was the main reason I filed on a Monday, instead of the Friday as previously planned). It was mine to keep and I didn't have to use any exemptions.

[KAM465]

Thanks Des and Helpmeout.

Not sure it matters, but I am an above means Chapter 7 based on having a negative DMI with 401K contribution and 401K loan repayment, both allowed in Chapter 13. Even if I take out the 401K Loan repayment I would still be negative in Chapter 13 but would be closer to $0.00. I was just curious if this could impact my filing and force a Chapter 13 by increasing my DMI

We have a long history of receiving bonus pay but it is by no means guaranteed. I received one in July that was included in the 6 month look back, but as of the day I filed we were at 0% Bonus for the 5 month period (June - Oct). As indicated this bonus was not expected, but because the CEO wanted to show good will to the employees based on what he feels will happen over the next 7 months he was able to talk the board into approving one; I just found this out last Wednesday. They are going out on a limb by approving the bonus and come the end of our Fiscal Year May 31, we don't make up money there will be no bonus.

[despritfreya]

Not sure it matters, but I am an above means Chapter 7 based on having a negative DMI with 401K contribution and 401K loan repayment, both allowed in Chapter 13.

These are not allowed deductions in qualifying for a Chapter 7. If you added these expenses to the means test analysis the UST will most likely object. The UST has 14 days from your 341 to file a Notice of Presumption of Abuse and then has 30 days from the filing of the Notice to file a Motion to Dismiss.

I was just curious if this could impact my filing and force a Chapter 13 by increasing my DMI

I believe this is an absolute “yes”. Your initial Plan payment may end up negligible but you will be stuck for 5 years.

We have a long history of receiving bonus pay but it is by no means guaranteed.

If forced into the 13 the 13 Trustee will require you to take into account the bonuses. If you believe you won’t get them in the future you may be able to “compromise” with the Trustee by agreeing to turnover any and all bonuses received as they come in.

Please keep us posted as you get closer to and past your 341.

Des.

[TomTea31]

Thanks Des and Helpmeout.

Not sure it matters, but I am an above means Chapter 7 based on having a negative DMI with 401K contribution and 401K loan repayment, both allowed in Chapter 13. Even if I take out the 401K Loan repayment I would still be negative in Chapter 13 but would be closer to $0.00. I was just curious if this could impact my filing and force a Chapter 13 by increasing my DMI

We have a long history of receiving bonus pay but it is by no means guaranteed. I received one in July that was included in the 6 month look back, but as of the day I filed we were at 0% Bonus for the 5 month period (June - Oct). As indicated this bonus was not expected, but because the CEO wanted to show good will to the employees based on what he feels will happen over the next 7 months he was able to talk the board into approving one; I just found this out last Wednesday. They are going out on a limb by approving the bonus and come the end of our Fiscal Year May 31, we don't make up money there will be no bonus.

Sounds like you work for a great company!

[KAM465]

TomTea,

Yes I do work for a great company been there 20 years and no intentions in leaving.


Des,

I am aware that the 401K contributions and loan payments are not allowable deductions on the mens test. However per my attorney they would be allowed under a chapter 13 in my district and baed on a hypathetical Chapter 13 there would be no Income to fund a Chapter 13, therefore based on the totality of the circumstances he feels they will be allowed; that said it still could go either way.

[despritfreya]

Des, I am aware that the 401K contributions and loan payments are not allowable deductions on the mens test. However per my attorney they would be allowed under a chapter 13 in my district and baed on a hypathetical Chapter 13 there would be no Income to fund a Chapter 13, therefore based on the totality of the circumstances he feels they will be allowed; that said it still could go either way.

Please keep us (me) posted. . . I disagree with your attny (my opinion which means a hill of beans). I believe that the totality of the circumstances is not the issue. The issue is whether or not you can rebut the presumption of abuse. It will be interesting to see if the Court (who has the ultimate say, not the UST) agrees that allowing such deductions in a hypothetical 13 meets the test to rebut the presumption. Personally I do not think you get there and I think the case law (maybe not in your district) supports this - but I am too tired to do the research to verify.

Des.

[KAM465]

Please keep us (me) posted. . . I disagree with your attny (my opinion which means a hill of beans). I believe that the totality of the circumstances is not the issue. The issue is whether or not you can rebut the presumption of abuse. It will be interesting to see if the Court (who has the ultimate say, not the UST) agrees that allowing such deductions in a hypothetical 13 meets the test to rebut the presumption. Personally I do not think you get there and I think the case law (maybe not in your district) supports this - but I am too tired to do the research to verify.

Des.

Motion of the United States Trustee to Dismiss for Abuse Pursuant to
11 U.S.C.§§707(b)(1), (b)(2), and (b)(3)
The United States Trustee for Region 9, XXXXXXXXXXX X XXXXXX, moves this Court for an
order dismissing this case pursuant to 11 U.S.C. §§707(b)(1), (b)(2) or (b)(3). The basis for this
motion is that the presumption arises and Debtor has not established special circumstances
necessary to rebut the presumption. The Debtor also has the ability to repay a portion of his
debts based upon the totality of his financial circumstances. In support, the United States
Trustee states:
Standing
The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334(a) and (b); 28
U.S.C. §§ 157(a) and (b)(1); and 28 U.S.C. § 151. This is a core proceeding pursuant to 28
U.S.C. §§ 157(b)(2)(A) and (B). The United States Trustee has standing to file this motion
pursuant to 11 U.S.C. § 307, 11 U.S.C. § 707(b) and 28 U.S.C. § 586(a)(5).

[LadyInTheRed]

So, is your attorney going to try to rebut the presumption abuse with the argument that your plan payment would be zero in a hypothetical Ch 13?

[KAM465]

So, is your attorney going to try to rebut the presumption abuse with the argument that your plan payment would be zero in a hypothetical Ch 13?

LadyInTheRed

Today was the last day for the USTT to file motion to dismiss so I checked on PACER this evening. I have yet to speak with my attorney but I am sure he will be contacting me yet this week. This is something that he thought may happen but both he and I were willing to give it a try. I guess we need to determine what the chances he can be successful with a rebut.

[ValleYum]

Awwww, Kam, I am sorry. I will be thinking happy thoughts for you... wish I could do more. Keep us posted.

[despritfreya]

Thank you for the update. Keep them coming if you can.

It looks like the focus is the presumption of abuse but, as is typical, the UST has covered all of 707(b).

The question now goes back to the allowance of the 401k deduction on Form 22 since such a deduction would not meet the test of "special circumstances" thus allowing one to rebut the presumption.

Again, I do not believe the main focus is the totality of the circumstances which is utilized if you qualify for a 7 under means testing or special circumstances. (707(b)(3) - totality of the circumstances, comes into play "in a case in which the presumption. . . does not arise or is rebutted. . .")

Remember, the judge has the ultimate say if you decide to fight. Just make sure there is no case law in your jurisdiction that goes against what you are arguing, especially opinions written by your judge. Cases supporting your position would be a positive.

Des.

[KAM465]

Thanks Valle and Des,

I will be certain to give and update as I learn more.

Des, you are correct in that the 401K deductions have come into question, in addition the USTT made note the my Mortgage Payment (includes Taxes and Insurance) and HOA Fees is double the median for my area. Based on discussions with my attorney and what I have read on this forum, I don't feel this is a major problem. The main concern I guess is will we be able to rebut based on the 401K contributions and loan repayment. I guess as they say if you don;t ask, the answer is always No.

KAM

[despritfreya]

I guess as they say if you don't ask, the answer is always No.

You hit the nail on the head. Good luck with your efforts and do keep us posted.

Des.