Question on Disposable income

[Vicduck]

I know I will qualify for chapter 7 on income but I am not sure if I will on the disposable part. I am self-employed.

I have a service contract with a company that pays me $2900(this is gross before business exp and taxes) every month and I am also a realtor (I easily will write off most of what I have earned as a realtor this year due to the bad market). I pay approx $2000 (owe approx $00K)per month on min payments for credit card debt.

What I am worried about is I do not know if I can prove monthly expenses that will qualify me for chapter 7 because the person I am living with, my partner, pretty much pays all the household expences and more because I do not have the money after I pay the credit cards.

Up until last month I have never been late on any payment in my life. I eat off the $1 menu, I buy very few things for myself, I have borrowed against my life insurance policies and borrowed from my mother just to keep my head above water in these last few years. When you figure out the disposable income is it actual or what you should/could be spending for normal living expences. If it is actual I cannot show it because there is very little left over after I pay the cc's.

Should I stop paying on the cc's 6 to 7 months before I file and try to establish a spending record for my business' and true living expences. I owe back Fed taxes and I have not filed state taxes for 2 years. I do not have the money to pay the taxes because of the cc debt. I know I have to catch up on filing for both state and fed before I can file for bankruptcy.

I am at the end of my rope and can not go on this way.

[btbeme]

Welcome to the forums.

First things first - can you post your income, expenses, and assets so we can be more specific with our advice?

Some quick thoughts...
- Expenses are allowable either as the IRS standards OR actual. If actual, you will have to provide a 3-6 month history or so to show the need for a higher amount than the IRS standards. That is deep water sometimes, as the Trustee will look closely at higher numbers.
- You have time before filing, so adding expenses to lower disposable income is entirely possible. Now, this is a murky area where an attorney cannot necessarily advise you, nor can we say that our suggestions will "work." But I can say that there are plenty of ways for you to justify expenses. For instance, a loan against an automobile will allow you claim the IRS expense for an auto payment, and it will lower your equity in the car, too - both of which might be important. Since you have little money, lowering your insurance deductibles on auto insurance will grow your insurance costs legitimately. Getting term life insurance is allowable. And so on...
- Stopping the card payments will allow you to file the taxes you need to file before filing Ch 7. It usually takes 120-180 days for the card companies to sue and get a judgement, so use that time to get squared away. You could also get a small loan from a friend on your car (make sure the lien is perfected) to pay taxes - just be sure to claim the loan on your Ch 7 filing.
- Is the federal tax that you owe part of a tax lien, garnishment, or IRS agreement? If so, don't pay it off yet - you might need that expense.

Welcome to the strange, crazy-straw logic of the Ch 7.

So...toss us some numbers and see if we can help you with some specifics.

[AngelinaCat]

Yes, stop paying on the CCs. Once you decided to file BK, continuing to pay on the cards is throwing your money away. And no, you don't have to bring yourself current on your Federal and State taxes. Anything you are not able to exempt in a CH7, that money, or those non-exempt items will be sold, and that money applied to your tax debt. Your Federal and State taxes will always be at the top of the list, above that of a secured creditor. The unsecured debt, such as CCs, and even medical bills, will fall by the wayside.

Good wishes to you. BTW, I adjusted your post into paragraphs to make it easier for the members to read.

[btbeme]

And no, you don't have to bring yourself current on your Federal and State taxes.

To clarify - you do have to file your past due taxes, but the tax debt doesn't have to be paid in full in order to file Ch 7.

[Vicduck]

Thanks, for adjusting my post into paragraphs. I am on a payment plan for my federal taxes for 2009,2010. I have not filed state taxes for those years but I am going to do it now, and hope I can set up a payment plan. I am getting ready to do my taxes for 2011 and since I have not been able to pay quarterly taxes I will not have the money to pay for either state or federal this year.

[keepsmiling]

Adding another warm welcome. You have found your new home Come join us at the dinner table as we sort out your financial new life.

You WILL have more money to pay taxes and other living expenses since you will no longer be paying 2k a month in cc bills. Unless that has all been floated from one cc to another (pretty much where I was when I ran out of resources and had to give up)

Throw some numbers at us and keep reading. We've got some pretty savvy folks here.

Have you been doing P and L statements? If not, you may need to start.