Over Median Ch7, Pass Online Means Test, Tax Return Question

[alo]

As expected, I have had another salary reduction that started December 1.

Based on this, while I am still over the median for a household of my size, I pass the online means test (mostly due to higher first mortgage and health insurance) with a DMI of approximately -$150 and my unsecured debt is $100K.

However, I've received tax refunds of about $6-10K the past two years (when my income was higher). Last year was $8K. This year (2012) will be about the same.

I plan to file BK in about April 2013 after filing my returns and using the refund for legitimate expenses. Historically, we use our refund to pay off debt, make home repairs or pay for medical/dental needs...and this year I have earmarked it for plumbing work, much needed home repairs and dental work! Some may go towards making ends meet this year!!

So, here are my questions...

Do the trustees look at tax refunds as income? Do they look back a few years even if income changed?

I just hope they are reasonable in their analysis. If I switch to a Ch13, my payments would probably only be enough to pay lawyers fees, our car loan and trustee fees? I have filled out the schedule I and J, and even with refund monies we come up with no DMI and nothing extraordinary in the way of expenses or luxuries.

Thanks for your input.

[despritfreya]

Receipt of a tax refund within the 6 month look back period is not counted as "income" for means testing purposes.

However, if you are overwithholding it could impact the allowed income tax deduction on the means test if you are above median income and must complete the entire test. This issue may be district specific so check with a local attny.

Des.

[alo]

Thanks. What is considered "over-withholding"? Family of three, I claim married and 3 exemptions/dependents (not sure of the correct term).

[despritfreya]

What is considered "over-withholding"?

You would have to check with your accountant but if you routinely get high refunds I would expect that you are overwithholding. But, again, I am not an accountant.

Des.

[momofthree]

It's usually considered over-withholding any time you receive a refund. A refund of $8000/year is additional dmi of $667 a month. Most trustees will salivate over that and push for a ch.13. You say you usually spend it on living expenses. Are these expenses that you can add as a line-item on your schedule J to eat up the additional funds on a monthly basis? For example, legitimate medical/dental expenses? Home & auto maintenance?