Claiming Expenses on Your Bankruptcy Schedules
The Profoundly Poor Etiquette of Double Dipping
Chips and dip are a soirée staple. For the host, it's simply conceived. Dump chips into bowl, pour dipping goop into second bowl. Put sur la table.
These days scooping-chips come in many trims. It's tough to find the optimal size that's both big enough to grasp, yet not so big that a single dip won't suffice. The latter shortcoming motivates the great breach we call double dipping. It's not as severe as open-mouth chewing (for that offense, we've banned one of our son's friends from all events tableside; it's one of said friend's several grating habits. The ignorant tenor of his speech, for instance, has prompted the Twitter thread: S#!T My Son's Friend Says), but it's up there.
Double dipping is a material concept in bankruptcy (natch). Yet, before broaching dipping, we must mention the other chip-related notion: disposability.
After the party, one considers the disposable or left over chips. Bag them and restore to the pantry? There were so many hands on em.... This is stuff that vexes. In chapters 7 and 13 bankruptcy, disposability vexes too. Disposable income is what should be left over from your paycheck after deducting only reasonable and necessary expenses. In Bankruptcy Land* disposable income translates to money for repayment of debt. If you have zero to nominal disposable income, then chapter 7--discharge of debt sans payment--is permitted.** If you have significant disposable income, then it must be committed (in its entirety) to a chapter 13 payment plan. It follows that whether you're filing 7 or 13, the lower your disposable income is, the greater your net benefit.
In preparing a tax return, Americans invariably claim the maximum allowable deductions, to minimize tax liability. In a matching vein, every bankruptcy debtor is compelled to claim all reasonable and necessary expenses, to minimize disposable income. The Internal Revenue and Bankruptcy Codes enable self-advocacy. It is the imperative of both the tax filer and the debtor to pay as little as possible. The debtor shall claim all expenses they properly can. But they can't claim them twice. That would amount to putting saliva in community salsa.
We refer to the main bankruptcy papers filed with the court as a "petition." It is really short for the "Voluntary Petition, Schedules, and Statements," which usually add up to 50-60 pages of good reading. Among the Schedules are itemizations of average/projected income and expenses. Schedule I is for Income (that's good enough for me). Schedule J is for Expenses, though for kicks,you may employ the mnemonic Jexpenses. Schedule I's total minus Schedule J's total yields disposable income or: what you have available (or not) to repay debt. If the amount's negative or nominal, you're good for a 7.** If the amount's significant, it should go to chapter 13 debt payment. In any event, the debtor wants the figure to be as low as possible.
Schedule I is a function of both income and deductions. It will list your gross wages and itemize all of your payroll deductions, from taxes, to retirement, to healthcare. It may also list your net business income, which would be a function of revenue less business expenses. The net income on Schedule I is then offset by Schedule J expenses. However, there must not be on J any duplication of costs already factored into calculation of net income on I. For example, if Schedule I includes a deduction for housing, Schedule J cannot claim the matching rental cost. If Sch. I reflects a cabbie's profit after deduction of fuel costs, Schedule J cannot list that same transportation expense (again). When counsel spots duplication on I & J, he must smack the hand that re-dips. Can't claim the chip twice.
Inadvertent duplication may be caused by confusion between qualified tax deductions and actual expenses. For example, a home-business owner may deduct on her tax return a portion of her mortgage when she calculates her income. When she prepares her bankruptcy schedules, she may then err by deducting that portion on Schedule I, but then claiming her full mortgage on J. For business persons, the confusion may be avoided by listing gross income on I, and business expenses on J.
On the flip side of duplication, there is a tendency to project deficient expenses. The bankruptcy schedules are prorated on a monthly basis. Yet certain costs don't recur each month. One must factor into the budget certain one-time costs. Monthly fuel may run $300; yet your transportation expense must account for replacing the tires that wear, or the transmission that busts. When the client puts down the offending chip, they may think to pick up a pretzel.
______ *A while back, pondering the paradoxical qualities of bankruptcy in conjunction with recent viewing of the superlative feature-film Zombieland, I was inspired to coin the phrase Bankruptcy Land. Suffice to say, it was disconcerting to later discover another blogging practitioner employ the identical idiom. Maybe it was too generic to view in terms of coinage, yet to this day I remain disconcerted.
**There are exceptions, of course, and keep in mind that I discuss here a fraction of the factors involved in preppin a petition.