Chapter 7 and Child Care Expenses

Asked over 1 year ago - 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. Nikhil J Chawla

    Contributor Level 8

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    Answered . 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. www.NewChapterLaw.com

    Thank you!

  2. Curtis Lamar Harrington Jr

    Contributor Level 20

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    Best Answer
    chosen by asker

    Answered . 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 --- http://patentax.com
    Bio: http://patentax.com/curt/index.html
    Library: http://patentax.com/library/
    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... more
  3. Matthew Scott Berkus

    Contributor Level 20

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    Answered . 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. Diane L Gruber

    Pro

    Contributor Level 18

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    Answered . 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.... more
  5. Robert Michael Fox

    Contributor Level 10

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    Answered . 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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