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high income / non-consumer chap 7 experiences ?

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  • high income / non-consumer chap 7 experiences ?

    Would like to hear experiences from those who might have gone through what I am looking at.
    I am self employed with a solid high income in consulting work. The $$ is inconsistent but averages out over the year as significant ($150 - $200k)

    I also have about $900,000 of investment real estate that is totally underwater and not producing any income. Can't rent it as the bank repos on each block are renting for about 1/2 of what my payments are. Used up most of my savings making the stupid mortgage payments each month to preserve a 750 score that is now around 450.

    Personal debt is only about $25,000 in cc. Would never consider filing if not for the real estate debt.

    Got bad advice a year ago by attorney who told me I could not file chapter 7. Learned about non-consumer chapter 7 w/o means test by doing my own research.
    I am currently in the planning stages and will probably file in about a month.

    My question is how much scrutiny did trustee give to your income and expenses or was it all irrelevant as long as you met the 51% non-consumer test?
    My understanding is that I have to submit a budget but all areas for trustee to object to surplus income fall under consumer debt, not non-consumer.

    Thanks in advance for your help

  • #2
    Your understanding is correct. I have handled numerous high income "non consumer" filings and none of my "non consumer" clients had any problems.

    Des.

    Comment


    • #3
      Thanks for the assurance, despritfreya.
      I think I have a good attorney who understands non-consumer 7 and also pre-planning to minimize asset loss. (many understand neither)

      I will be submitting a budget with actual expenses and income showing a large amount (1-2k) of discretionary income before the investment property payments which are about 7k.

      Based on your experience, are there any landmines I should watch for or is this really a cakewalk once you get over the 51% non-consumer?

      Comment


      • #4
        You should not have any problems.
        All information contained in this post is for informational and amusement purposes only.
        Bankruptcy is a process, not an event.......

        Comment


        • #5
          Originally posted by porkchopcash View Post
          I will be submitting a budget with actual expenses and income showing a large amount (1-2k) of discretionary income. . .Based on your experience, are there any landmines I should watch for or is this really a cakewalk once you get over the 51% non-consumer?
          Can't say that it is a "cake walk" as a Trustee has a job to do in investigating if there are assets he/she can liquidate. I can say that disposable income is simply not an issue in a non-consumer filing. I have had "non-consumer" clients with $4k/month "disposable income" and no problems with whether or not they were entitled to file a Chapter 7.

          Des.

          Comment


          • #6
            Originally posted by despritfreya View Post
            Can't say that it is a "cake walk" as a Trustee has a job to do in investigating if there are assets he/she can liquidate.
            That is why it is ever so important for the OP to do complete and full disclosure. It actually can be a "cake-walk" so to speak if it is all laid out in the open. Not saying that it won't be painful, but it should not be any problem.

            Warm up the copy machine!
            All information contained in this post is for informational and amusement purposes only.
            Bankruptcy is a process, not an event.......

            Comment


            • #7
              Assets should not be a problem as I have very little unprotected cash and will take steps to reduce that prior to filing (pay bills a month ahead and daughter's college tuition Anything left will be deposited in my HSA (I run my own s-corp)
              That should zero it out.
              My bigger concern now is household goods exemption. Indiana has about $9000.
              Assuming I don't do anything weird or illegal would a trustee have reason to believe that someone with a 200k income has over $9000 in household goods?
              They can see from last two tax returns that I have dumped about 50k per year into these useless investment properties.

              Comment


              • #8
                Originally posted by porkchopcash View Post
                Assets should not be a problem as I have very little unprotected cash and will take steps to reduce that prior to filing (pay bills a month ahead and daughter's college tuition Anything left will be deposited in my HSA (I run my own s-corp)
                That should zero it out.
                My bigger concern now is household goods exemption. Indiana has about $9000.
                Assuming I don't do anything weird or illegal would a trustee have reason to believe that someone with a 200k income has over $9000 in household goods?
                They can see from last two tax returns that I have dumped about 50k per year into these useless investment properties.
                Well, if you want your case to be a cake walk, I strongly suggest you speak to and hire an attorney to help with your pre BK planning before you DO ANY of what you suggested. All of what you suggested is very much in the "dark grey" area of pre BK planning and will likely cause problems.
                Last edited by HHM; 01-24-2011, 11:34 AM.

                Comment


                • #9
                  HHM, I appreciate your comments and concern.
                  I have an attorney and at initial consult he said it was ok to pay essential living expenses (house payment, utilities, insurance, etc.) one month ahead because I have intermittent income (consulting, only paid when I work) and uncertain about future income in these economic times.
                  HSA contribution (lump sum) is something I have always done with my company.

                  Comment


                  • #10
                    Caution as it relates to the HSA. . . please make sure it is exempt. In many States there is no such exemption as the legislatures have not caught up with the times. I think it is an allowed Federal exemption but I am not sure. I can tell you that in my jurisdiction it is not exempt but I am not in Indiana.

                    Des.

                    Comment


                    • #11
                      Des
                      One other question. I pay myself both a salary and dividend distributions out of my s-corp and will probably have about $10,000 in accounts receivable at the time of filing.
                      Since I am a sole member s-corp and all profit is really my income, can this be subject to the unpaid wages exemption.
                      If so, how should I look to structure that.
                      Thanks,

                      Comment


                      • #12
                        Trustee steps into your shoes...what that means is, if you are the sole shareholder of an S-Corp., the trustee becomes (temporarily) the sole shareholder of the S-Corp. Exemptions do not apply to Corporations. Any outstanding A/R could be taken by trustee. Unless your state has specifically ruled on how the wage exemption applies in this scenario, that entire $10K is subject to seizure by the trustee (trustees love to after that sort of thing since most debtors, and many debtor attorneys forget that the corporate structure provides ZERO protection in the BK context because the trustee can simply liquidate the Corp as part of the personal BK of the owner).

                        In a case like this, you need to plan a "window" of opportunity to file your case where you have limited A/R and have already spent down your non-exempt cash on hand.
                        Last edited by HHM; 01-24-2011, 02:49 PM.

                        Comment


                        • #13
                          "showing a large amount (1-2k) of discretionary income"

                          This could be a problem, I did a non-consumer 7 and my attny made it clear I could not show the ability to fund a ch13. It woud appear with 1-2k in discretionary income you could fund a 13. Get a good attny.

                          Comment


                          • #14
                            That surprises me as non-consumer is not subject to those objections.
                            However, your advice is well heeded. I will make sure there is no discretionary in budget.
                            I also have over 7k monthly payments on investment property. That should blow out a 13.

                            Comment


                            • #15
                              HHM's comment is correct but I do have something to add. A Trustee cannot use corporate assets to pay personal debt unless all of the corporate debt (if any) has been paid in full. Therefore, if the entity owes $20k, having $10k in the entity's account should not be an issue however, it is best not to have any funds in the account.

                              Myid4u2c: Are you sure you were a non consumer filing. Having positive cash flow is not an issue and will not lead to filing a Chapter 13 in a non consumer chapter 7. The Code simply does not allow a Trustee or creditor to look at the ability to fund a Plan unless it is a consumer filing.

                              Des.

                              Comment

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