How to count income from business? Cash, or net?

[fireworks]

I just had a job interview today, and it could be a really GREAT position for me - but could pose problems for my bankruptcy proceedings.

At the end of February we closed our business. Last month I sold the last of my remaining inventory and fixtures to a similar business in a nearby city for about $6500. Since we had been selling things at below cost in our "going out of business" sale, and of course I sold the remainder to the other store at less than cost, my books show a net loss so far for 2009 of about $5K.

This new job would be very commission-based so I have no guarantee of what I'll make from month to month. I would start off with a salary for training but transition to a commission structure within a few months. With commission there's obviously no guarantee of what my paycheck will be from month to month, but from talking to the other sales reps there it's reasonable to expect about $70K yearly average. That's of course over the line for filing a ch.7.

My plan has been to close out the store (check), get my taxes filed (almost there) and spend down my remaining cash and tax refund before pulling the trigger on the BK filing. However, I'm a bit concerned about how this new job would affect my eligibility for a Ch.7. Right now, if you look at my last 6 months of net profit from the business, I'm in the hole by about $10K (as in negative income). However, since I haven't been paying business overhead (rent etc) and haven't paid credit cards, I currently have about $7K in cash. Quarterly taxes are due soon and will take a big bite out of that, but there's still some cash there.

So my question is, if I were to land this job before filing, how does the store income count toward my means test? Would the business loss count as a negative number in my average income, or would they just count the cash income from the last couple of months?

[BigJohn]

What was the organization of the business? Corporation?

What did you report to the IRS last year your inventory was at the end of the year?

What was your gross sales?

[fireworks]

Thanks for your reply.

The business was an LLC, with myself as the sole member.

Inventory assets as of 12/31/08 were just under $30K.

Gross sales in 2008 were just under $165K.

I heard back from the lawyer's office yesterday and spoke with the legal assistant handling my case. She told me that without having concrete numbers she can't give concrete answers (of course). However, she said that we would need to look at P&L by month, and the months where we took a loss would count as $0 for means test purposes. That puts me at under $1K/month average over the last 6 months, before figuring in any new employment. Even if I get this new job, unless the training salary is just sky-high I'll be fine. With the products they sell it takes several months to secure a sale, so I won't be making any huge commissions right off the bat. I just need to get the paperwork all wrapped up so we can get taxes, BK and everything done PDQ.

[BigJohn]

The new job is commission based. When you first start, I don't think you will be making top dollar.

If you get the job, I would use base figures or a little above base.

[BigJohn]

As for the job, I would think seriously about filing now and not take into consideration the income you might get from the job.

[fireworks]

The new job is commission based. When you first start, I don't think you will be making top dollar.

If you get the job, I would use base figures or a little above base.

If/when I start the new job, I'll be on salary for the first several months. The commission doesn't start until I'm out of training which would be 3-6 months at least. I don't THINK the salary would be over the median, but it might be. I haven't been given any solid numbers for that.

As for the job, I would think seriously about filing now and not take into consideration the income you might get from the job.

Definitely making progress on that. I'm about wrapped up with the business stuff so now I have to work on the personal accounting. That part should be much less complex. Once that's done, I'm off to my CPA to get my taxes filed, and then I'll deliver the boxes of paperwork to my lawyer's office.

The trouble is, I'm sitting on several thousand dollars. If you had told me 6 months ago that I would have a problem with too much money, I would've laughed, but that's the issue. I'll have to pay my quarterly sales tax and payroll tax this month, which will take a big bite out of that. We have lots of work on the house that could be done, some work on the car that could be done, I need to go see a dentist, so plenty of ways to spend that down legitimately. Until a new job is definite I don't want to spend it in case we need it for bills and food next month. I definitely don't want to have it when we file, I know in that case it would all go to the BK estate.

I guess an important question would be, when is the magical date that I have to be completely broke? Is it the day of filing, or the day of the 341 meeting, or....?

[StartingOver08]

Its the date of filing you need to have a min amount in your checking. Make sure it is exempted on the petition.

[CH33 Paralegal]

The 22C is not the end all. If you have money left over after reasonable expenses have been paid for, that's the same as having DMI and a pool will have to be proposed....you won't have a 60 mo ACP at least....

Spending your money down and your tax refund down right before you file is could bring up faith issues. What is that money going to be spent on? The courts opinion is that it better be spent on getting by or paying down debt. if that money was spent in any way that even sort of smells like discretionary spending, then you could have a pool orginate from that.

if you want the frest start, get the fresh start. The unsuccessful 7's are the ones that try to be pre-meditated.

[CH33 Paralegal]

with commissions, it's hard to estimate. You certainly can't assume that you'll make NO SALES, but there is NO GUARANTEE that you will make what the other sales reps AVERAGE.

I've done sales before, my opinion that I've shared with some attorneys that I know is that we can maybe meet half way between the amount that other average and the base pay. You certainly won't hit the ground running, and it's going to take a few monthe to get into the groove. I would think at this point in the year, you'd have 3 months of mostly base pay, and then 4 months of commissions at the pace or slightly slower than your colleagues. It's a fair compromise, but the problem for attorneys is to do what's in the best interest for the client, and assuming you'll make money is not in the best interest. On the other hand, attorneys can't lie and pretend that a client isn't making commissions.

You know what you're capable of and you know the products you're selling. You should be able to estimate for yourself what you REASONABLY anticipate to earn.

[CH33 Paralegal]

I also want to add that a Ch7 is suppossed to be a case based off what is happening right now. It's not like a Ch13 where its lasting years and years.

[fireworks]

Thanks for the replies.

The job described in this original topic did not come through. After going further in the interview process and meeting with some other people who work there I was a little hesitant to press on, so the official "we've hired someone else" letter was a bit of a relief. I did however accept a sales position with a different company.

At my new job I'm earning a salary plus commission. Due to the seasonal nature of the business I will earn very little commission until my August paycheck at the earliest (and I knew that going in). September and October will be the big months and will provide some residual income from that point on but the summer will be very lean. I'm the first and only road rep at this company so there's nothing to base an average income on - we'll find out in the fall. My base salary is only $24K which is far under the median in Texas. Once Uncle Sam gets his cut of that I think the bills will be covered but we'll be relying on my wife's income and whatever I can pick up on the side for food and gas money.

Regarding expenses, we've been holding back on lots of "reasonable" expenses. We have of course started stocking up on some supplies and I did a bit of clothes shopping (less than $100) since the new job requires a different dress code than the old one. My car needs extensive work (AC for sure, maybe CV joint, something's up with the exhaust) and since the new job involves calling on customers I need a reliable vehicle. I haven't been to the dentist in 18 months and will probably need some significant work done (I'll find out at my appointment next week). Our water heater is in need of replacing. If that doesn't use up the available cash then I'm sure I can find more.

After paying quarterly taxes in April and taking draws for personal bills in April and May, the store's account is down to about $3000. I'll get a paycheck on 6/1 that should cover June's bills. The car and the dentist will knock out most of the remaining store cash, what's left can go toward groceries until we get the BK filed. I'm sure we can get that money spent on reasonable and justifiable expenses pretty quickly - the attorney said he had some suggestions if we ran out but that's not likely.

Anyway, we'll see. Taxes are almost done, which will add a bit more cash to the pile. Hopefully I'll be done with the BK by the end of the summer when my job will be ramping up into high gear. From around mid-August to mid-October I'll be working probably lots of overtime so no time for court dates and paperwork, but it'll pay off on that October commission check.