New and Need Bkrptcy Planning re: move to expensive apt!

[cityplanner]

Help! So glad to have found you all.

We are about to file bankruptcy, perhaps my husband will do this on his own.
We are also about to sign a lease that is for an apatment about double the "allowance" allowed (we make too much to qualify for Ch 7). We live in a very expensive city and the IRS/Trustee guidelines do not fit at all, not even close to a safe apartment!

I'll also be starting a new home based business and wonder how that could factor in. I need space in this location to continue, and we are firmly in the midrange of the neighborhood.

I'm concerned about dh being on the lease and having the trustee say we have to move! Could that happen? Please advise and thanks again!

[HHM]

Not a good plan...Part II of the means test allows you to take "secured" expenses in their full amount (e.g. mortgages). Rent is not a secured expense. If you are renting, regardless of your actual rent, you will be limited to the IRS allowed expenses. Also, the other bad fact is you are doubling your rent on the eve of BK, that fact has a hard time passing the "smell" test.

Go meet with some attorneys and get their take on the issue. The local attorneys will have a better sense of what is actually going to fly (rent expense wise) in your area.

[cityplanner]

Is there a way to structure this that would help?

What about if my dh files the bankruptcy in his name only? This is not an extravgence re: BK, it's a move to where my clients are. My business is completely separate from anything dh does...

Or, could I rent the apartment with dh "subletting" from me?

Just trying to make this work because we've got to be in the area for me to stay afloat.

Thanks again!

[DeadManCrawling]

Additionally,

Last-minute (eve of bankruptcy) additions of business expenses that have not been regular occurrences for at least six months will certainly be denied.

You may have the best of intentions with this, but here is how the BK court will view this:

1. Debtor knows they are in financial trouble.

2. Debtor is preparing to file BK.

3. Debtor makes too much money to file CH7 without more expenses.

4. Debtor rents a much more expensive apartment than allowed by IRS standards AND elevates expenses by opening a new business and attempting to claim previously nonexistent business deductions.

All of this, combined, will smell like fraud. You may be honest, good folks, but you will be under terrible pressure to prove it. Your best bet would be to prepare for CH 13, if you qualify, or delay filing a 7 for a few years after starting this new business.

An additional hurdle: The new business will, upon filing, become property of the federal BK trustee. Not sure that would be a pleasant experience. If the business is based solely on skill, it might not matter much. But if there are inventory, fixtures, leases, and assets, you will be sunk before you begin.

Good luck, and well wishes,

-dmc

[JEM]

Additionally,

Last-minute (eve of bankruptcy) additions of business expenses that have not been regular occurrences for at least six months will certainly be denied.

You may have the best of intentions with this, but here is how the BK court will view this:

1. Debtor knows they are in financial trouble.

2. Debtor is preparing to file BK.

3. Debtor makes too much money to file CH7 without more expenses.

4. Debtor rents a much more expensive apartment than allowed by IRS standards AND elevates expenses by opening a new business and attempting to claim previously nonexistent business deductions.

All of this, combined, will smell like fraud. You may be honest, good folks, but you will be under terrible pressure to prove it. Your best bet would be to prepare for CH 13, if you qualify, or delay filing a 7 for a few years after starting this new business.

An additional hurdle: The new business will, upon filing, become property of the federal BK trustee. Not sure that would be a pleasant experience. If the business is based solely on skill, it might not matter much. But if there are inventory, fixtures, leases, and assets, you will be sunk before you begin.

Good luck, and well wishes,

-dmc

Can you expand on that for me? Does that include PERSONAL expenses like adding dental insurance to your budget, or lowering auto deductibles, or an alarm monitoring to your budget? Even if they haven't been in your budget for the last 6 months?

[DeadManCrawling]

Some things, considered essential, are fine. For instance, last minute medical and dental expenses should be okay.

Even life insurance, TO A LIMIT, is ok. Now, if you suddenly have 5 million dollars in life insurance at 2400 a month, and your DMI would otherwise be 2300 a month, you will have problems.

This is a district-specific question that no one, except an attorney in that district, can really answer.

You are allowed to resume necessary expenses that have been neglected. The definition of "necessary" varies-and is what can raise questions. Talk to the attorney, and if in doubt, find a better, more "necessary" expense to use the money toward.

[JEM]

Some things, considered essential, are fine. For instance, last minute medical and dental expenses should be okay.

Even life insurance, TO A LIMIT, is ok. Now, if you suddenly have 5 million dollars in life insurance at 2400 a month, and your DMI would otherwise be 2300 a month, you will have problems.

This is a district-specific question that no one, except an attorney in that district, can really answer.

You are allowed to resume necessary expenses that have been neglected. The definition of "necessary" varies-and is what can raise questions. Talk to the attorney, and if in doubt, find a better, more "necessary" expense to use the money toward.

Ok. That makes sense.

We were just considering things like lowering our auto ded's to something easier to come up with, if necessary...like from $500 to $100.

And adding dental insurance through husbands job (like $50/mo)

I will add that to my list of questions when we finally start meeting with lawyers.

Thanks!!

[DeadManCrawling]

Also, a last-minute business start-up with no record of actual expenses and income can be viewed as a facade to hide expenses or income.

The reasons for this include:

You could be hiding or attempting to spend down money that would otherwise go to creditors.

You could open and operate the business long enough to get through BK closing and then shut down the business, in an attempt to avoid creditors in a CH 13.

You could be transferring non-exempt money to a business to avoid having it taken for benefit of creditors.

Particularly of interest to trustees will be last-minute loans, secured by relatives or insiders, that increase your expenses and allow you to avoid a CH 7.

The general reasoning is along these lines: Debtor knew they were in deep doo-doo, but acquired MORE debt, from family or friends, to open a new business, which ADDS to their expenses, on the eve of BK. Looks like debtor is trying to game the system.

The risk here is that the expenses, loans, and secured creditors, if insiders, could all be avoided. That means none of it will count.

Friends, family, insiders, will be required to repay the trustee any money you have given them, and will lose everything they attempted to use in helping you.

Now, if this is an honest attempt at a business start-up, you still have the above questions, especially about taking on new debt on the eve of BK.

If you truly are going to file, and want to start a new business, wait until after discharge to be safe.

Some of my comments are making certain assumptions of which I know nothing. Some of those could have NO application to you and your particular situation, but I posted them so you (and others in the future on this board) would be aware of the implications.

Best luck,

-dmc

[cityplanner]

I'm starting to wonder why we should file. Really, we have old debts ... some will be charged off, some might pursue us for collection. I seems unfair to be put on an "allowance" by the court. Especially since these are mostly medical bills and mostly dh's.
(He was an independent contractor for years then went to W2 and income plummeted). Why should I be punished for this? As for my biz - it's a service business w/ very few expenses if I work from home. Sigh.

[nc73]

I'm starting to wonder why we should file. Really, we have old debts ... some will be charged off, some might pursue us for collection. I seems unfair to be put on an "allowance" by the court. Especially since these are mostly medical bills and mostly dh's.
(He was an independent contractor for years then went to W2 and income plummeted). Why should I be punished for this? As for my biz - it's a service business w/ very few expenses if I work from home. Sigh.

charged off still means you owe the money and they are mostly likely already in collections. i would file before starting the business..