Recently, one of my clients became upset that a disability claim settlement had to be disclosed to the Chapter 13 trustee. My warning was that the Chapter 13 trustee may well consider any lump sum of money to be income.
INCOME? (he yelled)…the IRS does not consider it to be income, why does the Trustee? The Trustee is bound by the Chapter 13 Order Confirming Plan. In Oregon, for example, the mandatory Order form provides (which then becomes an order when the judge signs it) that:
the debtor shall report immediately to the trustee any right of the debtor or debtor’s spouse to a distribution of funds (other than regular monthly income) or other property which exceeds a value of $2,500.00. This includes the right to disbursements from any source, including, but not limited to, bonuses and inheritances. Any such funds to which the debtor becomes entitled shall be held by the debtor and not used without the trustee’s permission, or, if such permission is not obtained, a court order.
That means any out of the ordinary income has to be reported to the Trustee. Whether it is taxable or not. Whether it is work income or not. Whether that distribution of funds involves a “right”, that income better be reported. (This would exclude “gifts” as a debtor does not have a right to a gift.)
Sometimes the code just doesn’t make sense. Consider, for example, the “means test”, another income analysis which gives a completely different view of income. My colleague Pam Stewart of Texas recently discussed what was involved in the calculation of gross income on this site. Susanne Robicsek of North Carolina discussed the kinds of income involved in the means test; Peter Orville of New York discussed the timing of income as affecting the means test. … and the conclusion remains the same. Legal sense has nothing to do with common sense.
all income in excess of 2500 be turned over the Chapter 13 trustee.
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Last modified: October 22, 2012