I received this email from a prospective client named Amy. She raises an interesting question about identifying income for disclosure purposes:
We are going to be filing Chapter 7 Bankruptcy and I have been selling some things on Amazon.com for 4 or 5 months now to help make ends meat. I have not reported it as taxes yet. Should I just report it as other income just to be on the safe side? Does anyone know how far back do they look at your bank statements for?
Here is my response: Amy most definitely needs to account for her online earnings. I suspect that she meant to say eBay instead of Amazon, so I will assume that she and her husband are earning some money through on-line auctions.
For median income/means test purposes, I think that the on-line income needs to be disclosed. eBay income may not be salary income, but it could be classified as “income from operation of business.” For median income/means test purposes, you would need to include your auction earnings during the six month period preceding the current month.
In my practice, I have seen numerous situations where my prospective clients is shocked to discover that income from a part time job or from a Christmas bonus ends up pushing the average monthly income over the median, thereby resulting in much more complex Chapter 7 or a move into Chapter 13.
If your eBay income will not be regular – for example, if you have sold off everything you plan to sell off, I think you could make an argument that the eBay income should not count for median income test purposes. Realize, however, that if you have to make this argument, you and your lawyer will be in front of a judge. Even minor litigation like this will result in a higher fee.
It may turn out that waiting a month or two for the purpose of diluting the impact of your eBay earnings will save you a lot of time and money and help avoid extra appearances in Court.
For purposes of Schedule I & J (the actual budget you file in your bankruptcy case), I think that you could make a better argument that the eBay income should not count. Presumably you have limited household items to sell and the Schedule I & J budget reflects future income and expenses. If you are running an active eBay business however, you need to include the average monthly income as income on Schedule I.
With regard to the question about how far back your bank statements are reviewed, the answer is that they may not be reviewed at all or you could be asked to show two or three years of bank statements. You should assume that any deposit in your bank statement will be questioned, so be totally honest with your lawyer.
Jonathan Ginsberg, Esq.
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Last modified: May 31, 2007