Tax Question

[Freddy03]

Since I'm pretty sure I won't be able to keep my tax return this year is it possible for me and hubby to change our withholdings this week to take home as much as possible before the end of the year? Or by doing that would it put us into a 13?

Right now we both claim Married 00.

Thanks

[SMinGA]

I don't know if it would put you in a 13 - but if you are in the habit of deducting more than you should (such as if you normally get a refund) then this could be a problem. Trustee can argue you're making a loan to yourself, and have falsely listed your DMI.

If you have severely negative DMI now - it probably won't matter. But if correct witholding puts you at a cashflow surplus, 7 might be difficult.

[Freddy03]

We always get a refund every year. I think I'm just going to leave it alone.

Thanks

[SMinGA]

When you retain an attorney - discuss with him/her before you make changes. Discuss this topic even if you don't plan to make changes. Sounds like your DMI is artificially deflated by over-withholding. Not that it was your intent, but intent is not the only thing that matters in bankruptcy.

The trustee could see that refund as additional DMI, since your refund is due at least in part to withholding extra taxes. (Due to claiming the wrong # exemptions on paycheck withholding.) As I said before, if your schedule I less schedule J is negative even if you corrected withholding, it probably won't matter. But if you're borderline for having DMI as things are now, this may be a problem.

If all it took to lower one's DMI to avoid a ch. 13 was to increase tax withholding for a lower net check - everyone would do it. Trustees will look for that, and remember they'll have the opportunity to review your returns & your check stubs. It will be obvious that your refund is from over withholding when they see the 0's claimed.

We always get a refund every year. I think I'm just going to leave it alone.

Thanks

[Freddy03]

When you retain an attorney - discuss with him/her before you make changes. Discuss this topic even if you don't plan to make changes. Sounds like your DMI is artificially deflated by over-withholding. Not that it was your intent, but intent is not the only thing that matters in bankruptcy.

The trustee could see that refund as additional DMI, since your refund is due at least in part to withholding extra taxes. (Due to claiming the wrong # exemptions on paycheck withholding.) As I said before, if your schedule I less schedule J is negative even if you corrected withholding, it probably won't matter. But if you're borderline for having DMI as things are now, this may be a problem.

If all it took to lower one's DMI to avoid a ch. 13 was to increase tax withholding for a lower net check - everyone would do it. Trustees will look for that, and remember they'll have the opportunity to review your returns & your check stubs. It will be obvious that your refund is from over withholding when they see the 0's claimed.

Urgh thanks I never even thought about our withholdings. We have always claimed 0 because we use the refund to pay our property taxes. Right now our DMI is under 100. I'm not sure I listed all my expenses.

[Freddy03]

Expenses:
Gas - Montly $160.00
Food - Montly $600.00
Clothing - Monthly $100.00
Medical - Monthly $100.00
Utilities - Monthly (Electric/Water)$350.00
Cable - Monthly $120.00
Phone - Monthly $120.00
Home - Tax/Ins $216.00
HOA $50.00
Student Loans $100.00
Mortgage $1,650.00
HELC - Mortgage $230.00
Car $385.00
Misc - Car/Repairs $100.00
Tolls/Parking $100.00
Auto Ins $145.00
Entertainment $100.00
Misc - Pet Care $50.00
Savings / 401k $100.00
School Lunches (?) $90.00
Total: $4,866.00

Groceries are usually a little more than $600

Does any of this look unreasonable??


Our net pay for the month is $4794.99 (this is minus healthcare/union dues/taxes, etc)

[ccsjoe]

How many in your household?

Gas looks low, phone hopefully includes cell phone bills as well. Where's your internet, under cable? Put groceries at what they are, if 620, then 620. Not sure about school lunches.

[Freddy03]

How many in your household?

Gas looks low, phone hopefully includes cell phone bills as well. Where's your internet, under cable? Put groceries at what they are, if 620, then 620. Not sure about school lunches.

Yeah I wasn't sure about school lunches either but I thought I throw it in there just incase.

We are family of 4 in Fl.

[Freddy03]

Here is an updated list - Also does it go by net or gross?? Thanks

Expenses:
Gas (cars)- Montly $160.00
Food - Montly $650.00
Clothing - Monthly $100.00
Medical - Monthly $100.00
Utilities - Monthly (Electric/Water)$350.00
Cable/internet - Monthly $120.00
Phone (3 cell phones only)- $120.00
Home - Tax/Ins $216.00
HOA $50.00
Student Loans $100.00
Mortgage $1,650.00
HELC - Mortgage $230.00
Car $385.00
Misc - Car/Repairs $100.00
Tolls/Parking $100.00
Auto Ins $145.00
Entertainment $100.00
Misc - Pet Care $50.00
Savings / 401k $100.00
School Lunches $90.00

Total: $4,916.00

[drowning123]

Goes by the gross and my lawyer separated the pre-tax stuff as well, so you need to take that into consideration. He subtracted my pre-tax stuff from the gross, then he subtracted the other expenses from that. Know what I mean?

[SMinGA]

Sched. I will list your Gross but also show your medical, taxes as deductions so arrive at your net.

Potential issues: Savings/401k. Don't think that one will pass muster.

I see a few things missing - maybe you included them as 'groceries' but @ 4 people, I don't think so... Personal care (soap, shampoo, haircuts, etc.) and household supplies (paper products, cleaning supplies) and and school supplies/education expenses. Each of these on its own may only add $30-75 a month to your list, but overall they make a difference. Also, if you have annual ad valorem tax on your car tag renewal - factor in 1/12 of the cost to your monthly. I don't see anything about life insurance. May want to research adding that.

Ideally I would say your correct net income (figure out what withholding should be, perhaps add 1/12 of your last refund back to your net monthly and see where that puts you?) should meet (not exceed) your expenses when you DO NOT count 401k, student loans.

Also make sure you're counting income, etc. correctly. If you get paid $1000 a week for example, its NOT $4000/mo. Its $1000 x 52 / 12 or $4333/mo.

[Freddy03]

nevermind saw SMinGA post

[SMinGA]

Means test is not an absolute, its only a step in the process. If you have disposable income, enough for a plan payment, then expect difficulty filing ch. 7 especially if you're over median.

That's why its important to take time and think about your budget. That way you avoid the risk of overlooking important details. You don't want your schedules to show DMI if you really have none.

Also look at the bright side: if ultimately you file a ch. 13, it can still work to your advantage. It can pay your property taxes & atty fees, and might pay very little else. Your student loans would be deferred (during the plan treated like any other unsecured, except they'd remain after the plan) and you'd probably be able to work out a fairly low payment. The 401k should count as an expense in a 13, not in a 7 by the way. The important thing going forward would be to remain firm in setting aside 1/12 of the property taxes/insurance each month.

[Freddy03]

Ok so our true net income is $5219.

Do I include the student loans in my expenses?

So after I adjusted my expenses a little to include (registration, school supplies, etc) and take out the savings (I thought you are allowed to save) it leaves me with DMI of about $200 (if I take out the student loan payment).

So even if I pass the means test will $200 force me to a 13?

Thanks again for everyones help I truly do apologize for my stupidity...lol

[SMinGA]

There are things you can do to decrease your DMI - some would call it smart bankruptcy planning. Keep thinking of things you may have overlooked. But also - look into adding a basic life insurance. That is not a bad idea overall, you want to look out for your financial future. Also, if you have high deductibles on auto insurance - see what difference it would make to change to $500. (Your auto loan probably requires $500 max deductibles anyhow.) Some districts even allow a small/reasonable expense for gifts/holidays.

$200 dmi would probably mean a ch. 13 since you're over median.

There are some things treated differently in a 7 vs. 13. 401k is one of them. The ch. 7 trustee may have a hard time agreeing that you should pay yourself ahead of your creditors. But 401k loans and reasonable contributions (usually what it takes to max out employer matching, perhaps more if you're closer to retirement) are allowed in a 13.

Relying on a student loan payment to eat up DMI is not a great idea, because you would not be responsible for making that payment in a 13.