Converted, Ugh!

[macsen]

U.S. Trustee filed a motion to dismiss our Ch. 7 filing and I thought the reason to be worthy of posting. The UST determined that our tax withholdings were excessive and therefore motioned to dismiss based on the fact that had we had utilized all allowable tax exemptions, we would have $100+ in disposable income. So, lesson to be learned is obviously, check your current exemptions when filing as they can factor into disposable income. Now I'll have to change me signature as we're converting to a Ch. 13

[Grace]

Good advice. Never give the government an interest-free loan.

[yomama]

Well now I found something new to worry about. I didn't know that our refund we get back after we file for taxes would be a factor in our BK. We never claim any exemptions through the year but then my husband claims the 3 of us when we file. We use that money to pay for our car insurance and life insurance and a few other things. Otherwise, we'd be afraid that it would get spent during the year. Geez, it's always something. Even if we'd have claimed more exemptions throughout the year and saved the money in an account to write out checks for those things I mentioned, wouldn't the trustee look at that amount in your account as being disposable income anyway then? I'm guess I'm confused.

[lrprn]

Well now I found something new to worry about. I didn't know that our refund we get back after we file for taxes would be a factor in our BK. We never claim any exemptions through the year but then my husband claims the 3 of us when we file. We use that money to pay for our car insurance and life insurance and a few other things. Otherwise, we'd be afraid that it would get spent during the year. Geez, it's always something. Even if we'd have claimed more exemptions throughout the year and saved the money in an account to write out checks for those things I mentioned, wouldn't the trustee look at that amount in your account as being disposable income anyway then? I'm guess I'm confused.

Yomama, wiser financial heads than ours all say you should set your withholdings so you get just a small refund. Otherwise you are giving the government an interest-free loan for a year plus then you don't have the money to use yourselves for legitimate reasons throughout the year. When you get a large annual refund, it might be more tempting for the trustee to take it when they see your tax return for this year (which he/she may do no matter how much it is....depends on your trustee and how close the refund comes in relation to your filing).

This IRS website helps you figure the family's withholding to minimize the dollars returned as a refund each year - http://www.irs.gov/pub/irs-pdf/p919.pdf . Something to think about for the future as you rebuild.

Try not to worry too much - just check with your lawyer to see what your trustee's practice around tax refunds is in your district. Hang in there!

[SinkingFast]

Macsen,............

Do you have like 6 people in your family and only set up to withhold for 2-3?? Is that what the UST is objecting to?? Is that where they are getting the extra income from??

When Hubby took the new job, we were having to pay for 2 places. We claim 6 when we file our taxes so that's the way Hubby set up his pay exemptions. For 6 so we could get every available pay penny to pay rent and house payments. That's the way the withholdings show on the pay stubs that were submitted to the Court.

If that's what's going on,............ The UST's office sure is getting ticky tack with BK Filers. Looking for any and everything to force a conversion.

[macsen]

I have three in my family and never changed from the 0 I set up 10 yrs. ago. U.S. Trustee objected stating if I took my allowable exemptions it would allow for enough disposable income to fund a Ch. 13 plan.

[yomama]

lrpro, Thanks for the URL. Gosh, I think I've read more about bankruptcy things than I've read about other things in the last five years. If we'd have known about the withholding thing sooner, we could have changed it, I guess, but being that we already filed, I don't think there's much we can do about it now. We just filed two weeks ago. I forget what our tax refund was this past year, probably around $2000, and so I suppose we'll be getting approximately that much in about March. Our 341 will probably be on January 3rd. Would it make any difference if we'd hold off on filing our taxes until after all this BK is done or won't it matter? If the trustee goes by the amount showing on a person's paystubs, then I don't think it would matter and nothing we could do would change anything at this point. I wonder how often the trustee looks at these things. It kind of upsets me that even when we try to make things easier on ourselves by not claiming any exemptions throughout the year (it really is easier for us to budget that way!), it might come back to bite us anyway. If we'd have claimed 3 all along and saved the money aside ourselves every week to pay for our insurances when they come due, then that money would be showing up in the checking or savings account anyway, so it seems like no matter what you do you can't win. I guess the only solution is to do what they did in the old days, stuff the money into a lard can. With the pitifully low interest paid at banks nowadays, it wouldn't make much difference in the amount you earn on the account anyway. I looked at our bank statement and it was something like half of one percent. I really wish I'd have studied up on all these things before we filed, but it was kind of like whoosh and we were ready to file. Thanks, and I'll try not to worry a lot.

[macsen]

I wouldn't worry too much. We were extremely close to $166 and over the median by 20k to begin with so it was just the little push over the edge the Trustee was looking for.

[CindyLou]

Question: Can you not pay your insurance monthy?? Most insurance companies will allow monthy payment plans...just a thought. Its much easier for me to budget that way..

[SinkingFast]

I wouldn't worry too much. We were extremely close to $166 and over the median by 20k to begin with so it was just the little push over the edge the Trustee was looking for.

Shows how much the UST's Office is scouring over people's filings.

To say, "Oh! You've claimed Zero dependents from your paycheck. If you claimed 3, you'd have $X more per month cash in hand."

I still think it's ticky tack.

Creditors,....... uhr, I meant,.......... Congress isn't getting what they wanted with the New Law, so the UST's Office is squeezing people to accomplish the goal.

[no_it_all]

<snip>So, lesson to be learned is obviously, check your current exemptions when filing as they can factor into disposable income.

Well, not really. Your income tax is not related in any shape, manner or form to the number of exemptions you claim on your W-4. Taxes are based on your income and deductions, not exemptions.

In addition, if you use your actual 1040 form or an IRS tax table and NOT your paystub, you will have an accurate indication of your tax liability.

The reason exemptions do not factor into disposable income is because they do not determine your tax liability (as you found out). If your exemptions are under-reported (claim zero when you can claim three), your disposable income isn't changed at all, you just get that extra money in March instead of weekly or bi-weekly. The most common excuse for under-reporting exemptions is because people want to use it as a sort of "savings account" that the government holds for them until March.

A correctly filled out Means Test Calculation worksheet should have shown that your income was being under-reported (by virtue of claiming zero exemptions) relative to your actual tax liability....... NIA