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Is it Property of the Estate?
Dear Group:
In my reading of 541(a)(6), I can't see how the following hypothetical
plays out:
California Debtor has over-median income. However, debts are
primarily (dischargeable) income tax and professional negligence
claims, so he's exempted from Means Test. And his high medical costs
would arguably bring his DMI below the abuse point.
Debtor is informed that his income will substantially increase in
about two months. A new employer is arranging to pay for his
professional services, and all services to the new employer will be
post-petition. But it will all be self-employment income. Debtor's
prior employers were partly W-2, partly 1099. No pre-petition
professional corporation.
An analysis of the Debtor's situation turns up that he will have to
pay now his own malpractice insurance, his own medical insurance and
other medical costs, and because he is 60 years old and in not-perfect
health, and doesn't want to work forever, a substantial amount into a
retirement plan. He has zero set aside for retirement.
My suggested handling could be:
Debtor to form his own professional C corporation, and employer to
pay the corporation. Corp pays all the medical insurance, medical &
prescription costs, miscellaneous business expenses, backlogged
continuing education and pension plan for debtor & spouse. By the
time the dust settles, the Debtor's W-2 income from his PC comes out
about the same. Debtor will receive a W-2 from the C Corp with all
appropriate taxes withheld.
Questions:
1) If the contract is signed pre-petition but no money is
expected to be paid until about a month post-petition, is this
property of the estate because of the contract?
2) Or is it exempt under 541(a)(6) as all the earnings are for
post-petition services?
3) If there is no contract, but just a "tentative verbal
understanding" is the answer the same?
4) Must the suggested handling be reported on Schedule I
(anticipated increases to income)?
5) Would I report it as an anticipated increase in income of the
Debtor's income after the expenses he would have to assume remained
substantially the same?
6) My reading of 707(b)(2) is that the UST couldn't bring an
abuse motion in the absence of a preponderance of consumer debt.
7) But will either the disclosure (or non-disclosure) lead to the
Ch7 T/ee or the UST bringing a 727 abuse motion?
Any comments on this fact pattern would be greatly appreciated.
Gerald McNally
McNally & Associates, P.C.
206 N. Jackson St. #100
Glendale, CA 91206
818.507.5100
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