$13,000 gift to me a few weeks before filing

[ingoodfaith]

I am new to the forum and a bit confused and freaked out. I am self emplyed, 56 years old and have been struggling for a year to keep up with household bills due to illness and lack of income. I have no savings. I have already begun with an atty to start filing for bankruptcy with a 30,000 old credit card dept and 40,000 student loan dept. I just received a generous gift from my aunt in the mail for Valentine's day of $13,000.00 to help with staying afloat and having a little cushion in case of an emergency. I need to file bankruptcy and need the gift money to live. I have not told anyone in my family about the bankruptcy and don't intend to in the future.
What are my options? Based on what I have been reading and my lawyer's advice not to deposit the check, I don't know what to do.
Thanks for your help!

[nc73]

I am new to the forum and a bit confused and freaked out. I am self emplyed, 56 years old and have been struggling for a year to keep up with household bills due to illness and lack of income. I have no savings. I have already begun with an atty to start filing for bankruptcy with a 30,000 old credit card dept and 40,000 student loan dept. I just received a generous gift from my aunt in the mail for Valentine's day of $13,000.00 to help with staying afloat and having a little cushion in case of an emergency. I need to file bankruptcy and need the gift money to live. I have not told anyone in my family about the bankruptcy and don't intend to in the future.
What are my options? Based on what I have been reading and my lawyer's advice not to deposit the check, I don't know what to do.
Thanks for your help!

Listen to your lawyer.

[keepmine]

Thank your aunt for her generosity and return the check {uncashed}. Tell her you may ask for her help later but right now you're OK.
Or, cash the check and delay your filing until you spend it down.

[DeadManCrawling]

Good thoughts from the others.

Always listen to your lawyer, but understand he or she is not psychic.

If your lawyer advised to not deposit, it's probably because you have no way to exempt the money.

There are ways around this. One is not depositing it and explaining the situation to your aunt. Then, she could offer the help later, after the bk is at least 6 months in the rearview mirror.

Or you could deposit it and delay filing by at least 6 months. Or longer if the attorney says so. This may not be to your benefit, though, if you spend the money now that would have been a greater benefit after BK.

The money would also be considered income for calculating means test results for a ch 7, and may throw you over the limit. Or it could add to your costs in a ch 13 filing. Not good, either way.

That is it, in brief.

If you can let us know what state you are in, your income and circumstances, there might be better answers. In all likelihood, it is as others have said, and I hope I explained it a little bit.

[backtoschool]

Once that money is deposited in your account it is a cash asset and needs to be exempted in your petition or spent before you file.

You can either wait to file until you spend the gift, or you can exempt as much of the gift as possible.

[AngelinaCatHub]

I have to disagree with a couple precepts. First, the best advice is to give it back uncashed and state nothing more. Attempting to "spend it down" or waiting a time limit, is near to fraud. You know you have it, had it, or spent it. It is surely income and we just had a member with the exact same question worded in a different way. Different answers were given to her. I'm giving the same answer I gave to her. Don't take this gift until your bk is over. Plain, simple, and say nothing. Aunty may be generous in the future. Also, 13 grand gift is a taxable event. Don't compound your stress level. 'Hub

[dscurlock]

I have to disagree with a couple precepts. First, the best advice is to give it back uncashed and state nothing more. Attempting to "spend it down" or waiting a time limit, is near to fraud. You know you have it, had it, or spent it. It is surely income and we just had a member with the exact same question worded in a different way. Different answers were given to her. I'm giving the same answer I gave to her. Don't take this gift until your bk is over. Plain, simple, and say nothing. Aunty may be generous in the future. Also, 13 grand gift is a taxable event. Don't compound your stress level. 'Hub

What generous is today, may not be generous tomorrow.

What do you call fraud? getting the money now, and
trying to avoid paying for it in BK? or just waiting to
file Bk for a later date in the future? This $13k would
surely get him down the road for another year or two
making min payments...and the futher it is behind you,
then the better off you would be...well maybe not that
long, but filing BK never helped out with household bills,
and other possible bills....

I do know about you other people filing BK..but if i had the
opportunity to get a $13k paycheck, then i would just
surely put BK on the burner for a while longer...

1: file Bk and have nothing...

2: have $13k - and maybe file in the future...

It is no different then filing with a lessor paycheck..
do i file now, or do i file later when I am unemployeed
and have no money?

and is that not the goal anyway..? Who wants to just
run out and file BK if they can get by awhile longer?

[LadyInTheRed]

Also, 13 grand gift is a taxable event. Don't compound your stress level. 'Hub

If you are talking about federal gift tax, the current annual gift tax exemption is $13k. Unless there is a state gift tax with a lower exemption or the aunt has given other gifts to the the same person this year, it is not a taxable event. Even if the aunt gives additional gifts this year, the aunt would report the excess over $13k on a gift tax return and would only pay tax if she has already used her $1 million lifetime exemption. If any federal gift tax is due, it is the giver, not the recipient, who must pay it.

[backtoschool]

I have to disagree with a couple precepts. First, the best advice is to give it back uncashed and state nothing more. Attempting to "spend it down" or waiting a time limit, is near to fraud. You know you have it, had it, or spent it. It is surely income and we just had a member with the exact same question worded in a different way. Different answers were given to her. I'm giving the same answer I gave to her. Don't take this gift until your bk is over. Plain, simple, and say nothing. Aunty may be generous in the future. Also, 13 grand gift is a taxable event. Don't compound your stress level. 'Hub

Actually it is not taxable Hub'. The federal tax limit on gifts is exactly 13k.

Also, in this case, the OP is going to put the money in his/her own bank account not a relative's.

I am not sure how this is fraud if the money is showing up in the bank account and is spent on expenses. The trustee will have access to those bank account statements at the 341, and can question each and every expense.

I think it will vary by trustee whether the OP is forced to count the 13k as income for the means test. It is a one time gift, so it is a vague area, but bonuses end up being counted as income and they are one time payouts so the OP's mileage may vary.

In any case, the OP will have to exempt the money if it is put in the bank.

[AngelinaCatHub]

OK, I'm mistaken on the gift tax. That's why I use a CPA.

The OP implied his desire to go for new start. Since I have been a victim of ignorance, I got to pay my Trustee 10.5K for preferential inside payments, and asset case. One of the assets happen to be a deposit on our electric account we had for 40 years but assessed a deposit for late pay.

In my opinion, the 13K would become an asset. If the OP can exclude those in exemptions that would be good. Better though is deferring it. Get the new start, and use the money for a good set up in the new start, not a band aid fix to pay down minimum accounts intended to never decline due to interest and would go away anyway in bk. That is a terrible waste of that gift.

Differing a gift not taken is not illegal unless the check is deposited. It is legally only a promise until cleared. That is my opinion and advice. The OP is making it now and bk would take about 90 days without any hitches. It took us three years and an AP. So, I have learned a lot since this experience. Not to say I'm right on all things. If I had been, I would not be here now. I'd have the money I used to have. LOL. 'Hub

[justbroke]

I agree with 'Hub and the general sentiment is that the poster should avoid cashing the check and return it to the Aunt. Perhaps the Aunt will be generous later... who knows. That money also causes issues with the Current Monthly Income (CMI) calculation. This could put the poster both over the median and with enough money to "technically" fund a Chapter 13. Why even risk it. Perhaps she can give you (much) less such that it only covers your immediate living expenses, without the "emergency fund".

Sure, it's not a taxable event, but that's irrelevant in the Bankruptcy context anyhow.

Besides, the poster's attorney instructed them not to cash or deposit that check. I always lien towards a debtor's attorney on matters since they are closer to the situation and have much more financial data than we will ever have here on the Forum. Remember, some States, like Arizona, only allow $150 in cash to be exempted. Don't waste your Aunt's gift.

[ryan]

I can relate to the OP...

I received a 10K gift first few days of Jan 2010. Never expected it (or that large an amount) and naively rushed to deposit it. Mainly cause I needed it desperately to pay bills, bigtime.
Now, after reading BK forum posts the last month I see I might have planned a little better.

I'm in a state with a $4000 wild card exemption which can include cash in bank. Of course some has already been spent to pay bills like elect, heat, food gas etc. The other state-allowed exemptions will easily cover the rest of my few things like a car.

If I can file by summer, I still expect a few thousand to be left. I almost wish I could just return a portion of it to my aunt and have it not be considered improper.

...or should I just plan on having a few thousand go to the trustee for creditors?

[keepmine]

...or should I just plan on having a few thousand go to the trustee for creditors?

Just delay your filing until none goes to creditors.
There are a lot of things you can use to spend down the money. Needed dental work. Eye exams and new glasses. Maintence/repairs to your car or home. The list is near endless.

[MarieT]

So am I understanding it correctly that if you have needed maintenance - not improvements - to your home and spend money on that it is okay even if it is in the 90 days prior to filing BK?

I had read about if you get money as a "one time event" that it can be excluded from your income as far as calculating whether you would be Ch7 or Ch13 if you can show it would never realistically be part of your income again. In my case, employer had been shorting pay for last three years, took all this time and finally put the whole amount in paycheck last month so now it makes last 6 month average way higher than it really is. For each of the 36 months it is not that much but for 6 months the average is a lot more. We have a letter from employer explaining the mistake. We really had planned to use that money for a much needed house repair.

What are the options.. if we waited 6 months it would drop off, right?? but not sure if we do decide to move forward with the BK that waiting makes sense.

[justbroke]

So am I understanding it correctly that if you have needed maintenance - not improvements - to your home and spend money on that it is okay even if it is in the 90 days prior to filing BK?

If it's for your health or welfare and you can prove it, you can always spend money on those things.

I had read about if you get money as a "one time event" that it can be excluded from your income as far as calculating whether you would be Ch7 or Ch13 if you can show it would never realistically be part of your income again.

Not in my District, and I don't even think it works in my State that way. Income is income is income, according to the law in 11 USC 101 that defines current monthly income. I don't know, but I read 101 exactly how it's written -- "means the average monthly income from all sources that the debtor receives... without regard to whether such income is taxable income" Large one-time gifts are income. If they paid your electric bill once, you may be able to use an exception that it wasn't "regular".

In my case, employer had been shorting pay for last three years, took all this time and finally put the whole amount in paycheck last month so now it makes last 6 month average way higher than it really is.

Deferred income, is still income once it's paid. So if that was within the 6-month lookback, you need to include it as income. Whether the Trustee or UST will allow it as "one-time" is a mater of fact for the Judge to decide.

What are the options.. if we waited 6 months it would drop off, right?? but not sure if we do decide to move forward with the BK that waiting makes sense.

I would consult an attorney in your area. Most USTs will see the extra money as income, especially since it came from an employer. Perhaps you can wiggle out of it, but the safest is always to let it "fall off" the 6-month lookback period.