Means, Median and Income

[Medora]

Hi All,
Sorry for starting another thread, but I didn't know how much I didn't know until I started reading these forums!
I see a lot about people expecting court battles or protests or getting pushed form 7 to 13 from being over the median income... well shoot, the median income is rather meaningless until one takes into account one's expenses! For sole proprietors, those expenses can be considerable.
So:
--We're over the median
--but under the Means Test,
--have a lot of consumer debt (over $100k)
--have a recent reduction in pre-tax income (from $180K 2007 to $115 2008)
Is this automatically a problem?
Did I read correctly in these posts that over 100K in debt and also income is an automatic US TRustee audit?

[DaisyMae]

Trustees get involved at random, and at intervals.

$100K is nothing. You can fail the means test by exceeding the income, then pass it by exceeding allowed expenses. You can also pass the means test, and then pass the allowances, and then yet show excess disposable income on Schedules I/J, and then you could be forced towards a CH13. It's a matter of tweaking numbers, finding appropriate loopholes and exemptions, and choosing the best time to actually file, and the like. To give yourself a good idea- sit down with the means test, complete that and then a rough draft of your Schedules I/J. You'll get a first good look at what direction you are heading, and whether to seek to reduce your income to pass the means test, or to increase allowed expenses, to pass the means test if you are over median income, or whatnot. It's really like filling out a cumbersome tax return with itemized deductions. You are always looking to tweak the final number...

[BROKENN]

As a sole prop, you minus all expenses related to business and running one from the income. That end number is your personal gross.

Then you minus all personal expenses from that and that is your net or here, your disposable income. You care very much what your DI would be AFTER the BK.

Remember every single cent you pay for biz like taxes, payroll, licenses etc. Then every single possible expense for personal.

You can search the forum for Business if you are only a Sole Prop and have no wage income in your household.

[JRScott]

Generally with large income and large debts (over 100k) then yes the UST is likely to review your case. Keep in mind in most cases these are routine. They will appear or their agent at your 341. They may have extra questions that the normal Trustee does not however sometimes they just sit quietly if they have no questions.

[Doghouse]

I am over 100K in income (based on 6 month avg) and over 110k in unsecured debt if I file now. In California, 100K income is really not that uncommon. Two of the three attorneys I met already told me I would qualify for a 7 based on head of household of three and all my expenses. The third attorney wants a retainer first. However, my job contract is also ending and I am about to be unemployed or converted to a FTE making 20 to 25% less so all that is going to affect what and when I file.

[Medora]

Thanks so much for the responses. I know, in California we are barely middle class with this income. It's shocking.
We DO have a lot of business expenses that a regular household wouldn't have--we pay our own SE taxes, healthcare, utilities are higher, etc. So I guess I can just use the info I prepare form my taxes...
But here's the questiono I deduct ACTUAL business expenses but IRS-allowed Personal expenses?
This is a grey area!
Thanks again... I think we'll be able to make this work...

[BROKENN]

We DO have a lot of business expenses that a regular household wouldn't have--we pay our own SE taxes, healthcare, utilities are higher, etc. So I guess I can just use the info I prepare form my taxes...
But here's the questiono I deduct ACTUAL business expenses but IRS-allowed Personal expenses?

Yes, like your taxes. Business P/L show health, tax, portion of utilities, cell, etc..
then that bottom income after business expenses is YOUR income minus rent/mtg, food, etc

[GPark]

Audits less likely.

You would expect those audits and challenges to really decline as the number of bankruptcies must be staggering right now. Sure they will still do their basic % but like everyone else in a bad economy they'll have to do more with less. This is good for us. If they still audit say 1/100 or whatever. They'll have a lot less time to do each one. I definitely can't see them hiring more in this economy.

[DaisyMae]

You deduct business expense from business income , yes.

And deduct IRS allowed expenses on the means test. But there is still Schedule J to deal with- and your actual numbers/expenses may be less that the IRS standard allowances- so what the means test may give...yeah- Schedule J may take away...

[BROKENN]

The pushing 7 to 13 is disposable income when you do a budget for after BK. Go ahead and search those threads. That is the key for completing the means test.

I would recommend an atty if you are a sole prop. I know a few people have gotten through Pro Se here as a sole prop, but it is a different game than a regular C7.

The 100K is not that important as pre-bankruptcy planning. Find someone who has business bankruptcy background and study all you can so you understand also!!