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Chapter 7 and Child Care Expenses

Northridge, CA |

I am looking at filing chapter 7 and my single largest expenses is daycare. Anyone that has a child and works full time knows how expensive this can be. Currently, I pay my mom to care for my 1-year old son but I am wondering if this will be scrutinized because she is a family member receiving cash and I am very close to not passing the means test.

Attorney Answers 5

  1. Best answer

    Curt Harrington
    Certified Tax Specialist -- State Bar of California Board of Legal Specialization (J.D.; LL.M.)
    Electrical(M.S.E.E.)-Chemical(M.S.Ch.E)(B.S. Chemistry)-Mechanical Patent (Intellectual Property) Attorney & MBA (562) 594-9784 ---
    Please remember to designate your question's BEST ANSWER.
    Questions for you to consider....
    1. Is mom taking the payments into income?

    2. Is your mom independent and not your dependent?

    3. Do you 1099 your mom?

    4. The trustee may ask for your and your mom's tax returns to make sure that there is no fraud (or tax evasion).

    5. Can you refute the suggestion that this is not simply a mechanism for gifts to mom?

    6. Have you been claiming the child care credit on your taxes?

    7. What will your tax records reveal when they are viewed by the chapter 7 trustee?

    8. Are your payments so small that they don't trigger an obligation for your mom to file?

    9. Put another way, assuming that your mom is rich, is it plausible to believe that you might be paying her and that she gives the cash right back to you? (or is just allowing you to use her name as a nominal "payee".

    10. is this a mechanism to try and "get you over" the means test? How would your mom testify if this blew up?

    So much depends upon who you are assigned as trustee.

    Curt Harrington Patent & Tax Law Attorney Certified Tax Specialist by the California Board of Legal Specialization PATENTAX.COM This communication is general information and not legal advice, and does not create an attorney-client relationship. This communication should not be relied upon as any type of legal advice. Please note that no attorney-client relationship exists between the sender and the recipient of this message in the absence of either (1) a signed fee contract and (2) remission of an agreed-upon retainer. Absent such an agreement and retainer, I am not engaged by you as an attorney, nor is any other member of my law firm.

  2. Hello,

    As long as you are actually paying your mom, and it is reasonable and necessary for you to pay for childcare, this expense should be one you can include. I hope this info helps. If you have any other questions, feel free to contact my office.

    Thank you!

  3. So long as money is actually changing hands and has been for a while, you should be fine. Generally, child care expenses are rarely scrutinized unless the amount is out of whack (e.g. $3000 a month for a 16 month old).

  4. You will need to prove what you pay mom, by taking cancelled checks to the 341 hearing. To be safe, before you meet with your BK attorney, take with you price sheets from at least two daycare facilities in your area. Good luck.

    Be sure to designate "best answer." If you live in Oregon, you may call me for more detailed advice, 503-650-9662. Please be aware that each answer on this website is based upon the facts, or lack thereof, provided in the question. To be sure you get complete and comprehensive answers, based upon the totality of your situation, contact a local attorney who specializes in the area of law that involves your legal problem. Diane L. Gruber has been practicing law in Oregon for 26 years, specializing in family law, bankruptcy, estate planning and probate. Note: Diane L. Gruber does not represent you until a written fee agreement has been signed by you and Diane L. Gruber, and the fee listed in the agreement has been paid.

  5. Childcare is a legitimate deduction and is allowed on sch j and the means test. The amount , if reasonable, is rarely scrutinized. The fact that you pay your mother, adds a wrinkle to the issue. As long as you have proof via checks, money orders or a supplemental affidavit you should be ok.

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