It's Complicated

[ConfusedPeet]

I have a question concerning Chapter 7 or 13. We originally filed for a Chapter 7 with an attorney. We had a problem "spending down" income and showed (on paper) disposable income of around $1400 per month. Problem is one of our income sources is not considered income by the IRS and should be excluded. Our 341 meeting did not go well with the trustee questioning our income. We were just informed by our lawyer that we were referred to the Federal level and do we want to fight for a Chapter 7 or go into a 13. Without the excluded income we pass the means test. Would you fight or take the Chapter 13?

[despritfreya]

. . . Problem is one of our income sources is not considered income by the IRS and should be excluded. Our 341 meeting did not go well with the trustee questioning our income. We were just informed by our lawyer that we were referred to the Federal level and do we want to fight for a Chapter 7 or go into a 13. Without the excluded income we pass the means test. Would you fight or take the Chapter 13?

Welcome to the Forum.

You fail to tell us what the source of income is. Regardless, such income not being so classified by the IRS is not "relevant". Under bankruptcy law, 11 USC 101(10A) states that Current Monthly Income means:

"the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income, derived during the 6-month period. . ." (Emphasis added.)

The only money that is excluded is that which is defined under (10B). So, unless your income falls under one of the exclusions, it is included. See:

https://www.law.cornell.edu/uscode/text/11/101

Scroll down to (10A).

Please advise what your attny's argument is to save the case despite the Code definition. Without knowing the argument, I don't know whether or not I would fight the UST.

Des.

[justbroke]

Thank you despritfreya on the definitions related to "income" (or current monthly income) under the code. Unfortunately many debtors don't understand that the bankruptcy definition doesn't account for whether or not any amounts are non-taxable.

I like that you made this reminder!

[ConfusedPeet]

Thanks everyone for the responses. Our attorney asked us if we wanted to fight for a Chapter 7 or convert to 13. We were referred to Federal by the trustee from our original filing. I included a similar case to my lawyer with the same type of income and the income was not included in that case. We decided not to fight though and are being converted to 13.

[justbroke]

It can depend on the specific Chapter 7 Panel Trustee and other issues in the case. There are people that get lucky and don't have a Chapter 7 trustee that is as "tough" or have a variety of other factors.