$13,000 gift to me a few weeks before filing

[BKDefender]

No, I don't provide the trustee with anything unless he/she asks for details on how the tax refund was spent.
If the debit card had a positive balance on the date of filing, it is a cash asset so I hope you did, or you will, disclose its balance as of the date of filing to the trustee as required by law in Schedule B 'personal property'.

William

[moonbeam9209]

Thanks BK Defender. So far I have used it for tires, paying bills, car payment, Senior pictures, etc. Nothing too elaborate, but a lot of it went to little junk, like McDonalds, etc.

I did, however, have the refund put on a Turbo Tax Visa, so that I can print out a list from their website for what exactly I used it for. It is so hard to keep track of receipts for little stuff, although I was wondering if you need to keep all of those receipts, too. Do I just hand the trustee a big fat envelope of receipts, or do I have to itemize each one?

[BKDefender]

barbj:
If your house is upside down, I wouldn't suggest you try to pay-down your mortgage. Most states exempt IRAs, Roth-IRAs, and 401(k) accounts. With my clients who have excess money, I have them create a Roth-IRA and deposit up to $5k in their account, up to $5k into their spouse's account, and until tax day (4/15/10), they can do the same for their 2009 Roth-IRA account. i.e. they can take $20k today, save it in a Roth-IRA and keep it after BK. The trustee might not like it, but if they're exempt then they're exempt. You should check with a local BK attorney to see if the trustee's put up a fight about it.

moonbeam9209:

If you get a $3k tax refund and spend it completely before filing, I would recommend you keep the receipts and give copies of them to your BK attorney. If you used it to buy a 65" flat screen TV then the trustee could make you return it. If you used it to pay your car note, one month on your mortgage, buy groceries, etc, then you're fine.

--William

[moonbeam9209]

So if you receive a tax refund of say...3000.00 and you spend it before filing.... do you have to explain where it all went to, or does it not matter because it was beforehand?

[justbroke]

The unsecured creditors are the beneficiaries of any liquidation of the non-exempt assets of the Estate. In other words, the credit card companies and other unsecured creditors. Since the IRS is a priority unsecured creditor, they may get first bite as well.

If you sell your truck in advance of filing, and put the money into your home, that may be an acceptable thing. However, I'd consult with a good bankruptcy or asset protection attorney to see if that's both a wise and acceptable thing to do in your State.

Since you say that you're already upside down on your home, that's probably not a wise thing to do.

[barbj]

If you do have extra cash that does not get exempted, who gets it? Would the secured creditor (ie 1st mortgage) get it all?

We have a truck worth about $20k paid in full. We are trying to sell it to buy something worth much less. What can we do with the extra money? I'd like to pay it to the mortgage.

We have $30k credit card, $57k HELOC, $416k mortgage. House is worth about $350k.

[doublestop1]

The whole notion of "waiting" until you're a few months into your plan makes me a little weary. But I'm glad to hear people discussing this. I filed in Oct and my case is coming up on March 15th. One of the things that's making me nervous is having little to no money around at the end of the month for unexpected problems. Even though my attorney built some buffer into my budget, it's still not enough to cover a big health expense, a major car repair, a house repair or larger business expenses (I'm self employed). I recently had a family member offer to give me a $5000 gift to leave in an emergency account, but after reading this thread, I'm hesitant to accept it. Even though I'd only be using it from time to time to cover unexpected emergency expenses, it sounds like I would legally need to disclose it to the Trustee...meaning that it could be at risk. I guess my question differs from that of the original poster. I'm already past my 341 meeting, etc. After you're filed and confirmed, how does the Trustee keep track of what you deposit...and whether or not you receive gifts like this? Do they monitor your bank accounts or conduct periodic audits?

[BKDefender]

If that $13k check would cause you not to be able to file bankruptcy (i.e. too much income during the prior 6 months of filing BK) then you might consider asking your aunt to pay for your bankruptcy then give you the rest of the money after you file.

Alternatively, if you can cash the $13k check and it not affect your ability to file Chapter 7 BK you could cash the check, fund your 2009 Roth IRA with $5k, fund your 2010 Roth IRA with $5k, use the $3k for some living expenses and to file bankruptcy, then after your 341 meeting, withdraw the $10k (losing 10%/$1k for early withdrawal fees) and have $9k cash free and clear for your own use.

This is presuming that your state exempts IRAs/Roth IRAs/401(k)s like just about every state, if not every state already.

William

[justbroke]

So am I understanding it correctly that if you have needed maintenance - not improvements - to your home and spend money on that it is okay even if it is in the 90 days prior to filing BK?

If it's for your health or welfare and you can prove it, you can always spend money on those things.

I had read about if you get money as a "one time event" that it can be excluded from your income as far as calculating whether you would be Ch7 or Ch13 if you can show it would never realistically be part of your income again.

Not in my District, and I don't even think it works in my State that way. Income is income is income, according to the law in 11 USC 101 that defines current monthly income. I don't know, but I read 101 exactly how it's written -- "means the average monthly income from all sources that the debtor receives... without regard to whether such income is taxable income" Large one-time gifts are income. If they paid your electric bill once, you may be able to use an exception that it wasn't "regular".

In my case, employer had been shorting pay for last three years, took all this time and finally put the whole amount in paycheck last month so now it makes last 6 month average way higher than it really is.

Deferred income, is still income once it's paid. So if that was within the 6-month lookback, you need to include it as income. Whether the Trustee or UST will allow it as "one-time" is a mater of fact for the Judge to decide.

What are the options.. if we waited 6 months it would drop off, right?? but not sure if we do decide to move forward with the BK that waiting makes sense.

I would consult an attorney in your area. Most USTs will see the extra money as income, especially since it came from an employer. Perhaps you can wiggle out of it, but the safest is always to let it "fall off" the 6-month lookback period.

[MarieT]

So am I understanding it correctly that if you have needed maintenance - not improvements - to your home and spend money on that it is okay even if it is in the 90 days prior to filing BK?

I had read about if you get money as a "one time event" that it can be excluded from your income as far as calculating whether you would be Ch7 or Ch13 if you can show it would never realistically be part of your income again. In my case, employer had been shorting pay for last three years, took all this time and finally put the whole amount in paycheck last month so now it makes last 6 month average way higher than it really is. For each of the 36 months it is not that much but for 6 months the average is a lot more. We have a letter from employer explaining the mistake. We really had planned to use that money for a much needed house repair.

What are the options.. if we waited 6 months it would drop off, right?? but not sure if we do decide to move forward with the BK that waiting makes sense.

[keepmine]

...or should I just plan on having a few thousand go to the trustee for creditors?

Just delay your filing until none goes to creditors.
There are a lot of things you can use to spend down the money. Needed dental work. Eye exams and new glasses. Maintence/repairs to your car or home. The list is near endless.

[ryan]

I can relate to the OP...

I received a 10K gift first few days of Jan 2010. Never expected it (or that large an amount) and naively rushed to deposit it. Mainly cause I needed it desperately to pay bills, bigtime.
Now, after reading BK forum posts the last month I see I might have planned a little better.

I'm in a state with a $4000 wild card exemption which can include cash in bank. Of course some has already been spent to pay bills like elect, heat, food gas etc. The other state-allowed exemptions will easily cover the rest of my few things like a car.

If I can file by summer, I still expect a few thousand to be left. I almost wish I could just return a portion of it to my aunt and have it not be considered improper.

...or should I just plan on having a few thousand go to the trustee for creditors?

[justbroke]

I agree with 'Hub and the general sentiment is that the poster should avoid cashing the check and return it to the Aunt. Perhaps the Aunt will be generous later... who knows. That money also causes issues with the Current Monthly Income (CMI) calculation. This could put the poster both over the median and with enough money to "technically" fund a Chapter 13. Why even risk it. Perhaps she can give you (much) less such that it only covers your immediate living expenses, without the "emergency fund".

Sure, it's not a taxable event, but that's irrelevant in the Bankruptcy context anyhow.

Besides, the poster's attorney instructed them not to cash or deposit that check. I always lien towards a debtor's attorney on matters since they are closer to the situation and have much more financial data than we will ever have here on the Forum. Remember, some States, like Arizona, only allow $150 in cash to be exempted. Don't waste your Aunt's gift.

[AngelinaCatHub]

OK, I'm mistaken on the gift tax. That's why I use a CPA.

The OP implied his desire to go for new start. Since I have been a victim of ignorance, I got to pay my Trustee 10.5K for preferential inside payments, and asset case. One of the assets happen to be a deposit on our electric account we had for 40 years but assessed a deposit for late pay.

In my opinion, the 13K would become an asset. If the OP can exclude those in exemptions that would be good. Better though is deferring it. Get the new start, and use the money for a good set up in the new start, not a band aid fix to pay down minimum accounts intended to never decline due to interest and would go away anyway in bk. That is a terrible waste of that gift.

Differing a gift not taken is not illegal unless the check is deposited. It is legally only a promise until cleared. That is my opinion and advice. The OP is making it now and bk would take about 90 days without any hitches. It took us three years and an AP. So, I have learned a lot since this experience. Not to say I'm right on all things. If I had been, I would not be here now. I'd have the money I used to have. LOL. 'Hub

[backtoschool]

I have to disagree with a couple precepts. First, the best advice is to give it back uncashed and state nothing more. Attempting to "spend it down" or waiting a time limit, is near to fraud. You know you have it, had it, or spent it. It is surely income and we just had a member with the exact same question worded in a different way. Different answers were given to her. I'm giving the same answer I gave to her. Don't take this gift until your bk is over. Plain, simple, and say nothing. Aunty may be generous in the future. Also, 13 grand gift is a taxable event. Don't compound your stress level. 'Hub

Actually it is not taxable Hub'. The federal tax limit on gifts is exactly 13k.

Also, in this case, the OP is going to put the money in his/her own bank account not a relative's.

I am not sure how this is fraud if the money is showing up in the bank account and is spent on expenses. The trustee will have access to those bank account statements at the 341, and can question each and every expense.

I think it will vary by trustee whether the OP is forced to count the 13k as income for the means test. It is a one time gift, so it is a vague area, but bonuses end up being counted as income and they are one time payouts so the OP's mileage may vary.

In any case, the OP will have to exempt the money if it is put in the bank.