Expert: Terry Leeders - 2/15/2008

Question
I'm filing Chapter 7 bankruptcy individually, due to business debts that are from personal guarantees to my S-Corporation.  None of my debts are in my wife's name whatsoever, so we aren't including her on the bankruptcy to keep her credit record clean.

My father has been giving me $1,100 a month for the past two years or so (thanks Dad) so I'm not homeless and unable to eat.  Otherwise, I have been unable to take a salary from my S-Corp for years, and don't take dividends either.

Question 1 - Is my dad's gift considered income under the bankruptcy, or do I have $0 income under the bankrupcy?

Question 2 - Do I still need to gather information for Schedule J and fill it out, or with $0 income (or $1,100 if Dad's gift is income) do I skip the Schedule J?

We are getting several large tax refunds, since I'm filing past years taxes (within statue of limitations to get refund) due to the allowable large business losses.  All of the income, deductions, and credits are attributable to me -- the only affect my wife has on the returns is being able to take the married, filing jointly deduction rather than the married, filing single deduction.

If they consider all of the refunds to be my asset, I'm going to go a bit over the federal wildcard exemption.  (I'm definately using federal exemptions, not state.)  If they consider it part her asset, so I don't have to exempt all of it, I'll be able to cover all of them using the federal wildcard exemption.

Question 3 - I'm in a non-community property state (Michigan.)  Will they consider the combined amount of the tax refunds considered my asset -- or is it split 50/50 since my wife isn't filing Chapter 7 with me?  (Do I have to exempt 100% or less of the refunds to keep them?)

Answer
You must disclose contributions to the household expenses, from your father, from your wifes job if working, any income you draw from biz, etc.  Also, you need to disclose current bank account balances in your petition.  So, the court would consider it income for the means test purposes.  You must list all of your current monthly expenses too, rent, food ,clothes, utilities etc.

Tax refunds are assets. Each state has different exemptions to protect these, so speak with your attorney on your state laws to properly advise you on how to protect the assets you have, including the tax refund.  Be careful, many states have 'opted out' of the federal exemptions, and do not apply.  Be sure to check with your attorney to see if these are available.  As to what % of the refund needs to be listed, a closer examination of the taxes would need to be done by your lawyer to get you a specific answer.   So, seeking out an attorney would be your best step.