Questions and Answers from Bankruptcy Professionals

The following questions and comments were submitted through email to Victoria Ring. The answers are provided by Victoria Ring who is not an attorney.  Therefore, the information provided in this article is for training purposes only and no whole or part should not be regarded as legal advice.

DEAR VICTORIA:

I have a debtor that owns a home based business.  In addition to what her company grosses, she has paid herself a salary for the past 6 months from her business.  On the Means Test, do I have to average the amount she paid herself from the business (Line 3), and in addition, average the monthly net business income (Line 4)?  Or, do I fill in Line 4, only?  Please help!!! First time I’ve had this situation.   My attorney is waiting for Form.

RESPONSE FROM VICTORIA:

First of all you need to fill out the Business Income and Expense worksheet that is included in most of the bankruptcy software programs. If you are using Best Case software, scroll down to the VERY BOTTOM of the list of forms. There is a folder named SUPPLEMENTAL FORMS.  Inside that folder is a form named BUSINESS INCOME AND EXPENSES.

Fill this form out and make sure it is filed as an attachment to Schedule I when the petition is filed.

Take the AVERAGE NET INCOME (Line 23) and enter this figure into Line 3 of the Means Test.  If you refer to the form you will see that Line 3 states: Net Payroll Other Than Debtor.)  Therefore, you will NOT include the money the debtor pays herself from the business on this particular worksheet form.

Since we now understand this information, we can reasonably deduce that the money the debtor pays to herself needs to be listed on LINE 7 or LINE 13 of Schedule I.  Check with your attorney to be sure.

Also remember to remind the attorney that he or she needs to obtain 6 months of bank statements from the debtor’s business account as well as her personal account.  The attorney will need this to verify the debtors’ earnings reported within the bankruptcy schedules.

Note: In some states, the attorney will simply take the bank statements with them to the 341 Meeting and hand to the Trustee. In other states, when the bank statements are used as pay advices, they would need to be filed with the bankruptcy petition (sometimes the court even requires a cover sheet.)  Always check your local rules of procedure to address questions at this level.

DEAR VICTORIA:

The debtor is married but is filing as an individual.  I included the husbands’ income in the Means Test because they do not live in separate households.  My problem is that I am not sure how to complete the Statement of Affairs for the husband.  I put the wifes income for 2009, 2008, and 2007 but do I also need to include the husband income for the same years even though he is not filing bankruptcy?  I was told only put 2009 for the husband because its only this year that counts for CMI.  It just does not look right to me and I wanted to run it by you.

RESPONSE FROM VICTORIA:

They may do things different in California but in all the petitions I have done (if the husband is not filing) we would place the husband’s income under Item 2 of the Statement of Affairs.  It would be listed as Spousal Contribution.  The husbands income would also be listed under Schedule I as well as the Means Test.

However, you may want to call your local California Help Desk because I have found that California has many strange customs that is totally different from other states.  I learn so much when I visit California, so make sure you check out my response to make sure you are complying with the court rules.

DEAR VICTORIA:

This is my first bankruptcy petition and I need some help.  I am filing a petition for my client and I am in California.  As you know, this is a community property state.  If a husband and wife are divorced and living in separate residences, and the husband wants to file bankruptcy without his wife, will the wife be responsible for the debts that are discharged and the husband does not pay?

RESPONSE FROM VICTORIA:

I did a little online research and I found the following information at
http://bankruptcy-law.freeadvice.com/consumer_bankruptcy/spouse_bankruptcy.htm
which states (in part):

…. Community property and common law (also called “equitable distribution”) are the two types of martial property ownership. The vast majority of states apply the equitable distribution rules; nine states apply the community property rules. If you live in a common law property state, your spouse’s bankrupt estate will include his/her separate property and half of the jointly-held marital property. The non-bankrupt spouse will not have to worry about the effects of the bankruptcy on his or her separate property.

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