Is income from employer that is subject to NDA/confidentiality agreement considered “Income?”

[dryanaz80]

Title is self explanatory.  Looked online and at IRS publications and there is a carve out rule where employer settlements or - payments made for a release of claims - which is subject to an NDA and strictly confidentiality (so long as non sexual harassment related) is in a gray area where it doesn't appear to be taxable due to the confidentiality agreement and is not related to sexual harassment.  However, even if the amount I received is not taxable, would this be seen/treated as income for bankruptcy purposes?  

This has major implications on when i can file because the settlement/payment  was in September 2021, so I'd have to delay my filing to have this month fall off my 6 month look back.... which really complicated things as I was laid off in November from a high paying job and although collecting UI, it's not enough to maintain my basic necessities, let alone the minimums on my credit cards/loans.  Had money in savings which I've started reallly depleting as we enter February.  I'd have to delay until April 1 to file to get September to fall off (and would then easily pass means test). If September is included in look back, with the settlement payment, I would not meet means test....that's how large this payment. 

I'm also curious when is it reasonable to stop making my minimum payments?  I'll either be filing March 1 or April 1, depending on that settlement issue -- to be able to pay my basic necessities, I'm afraid that I'm going to have to stop making minimums which easily total close to $2000 across all accounts. With UI of only $450 per week and rent of $1300, you can  see I'm going to have to make some decisions. 

I'd prefer not to have dings to my report before BK, but I suppose that should be the least of my concerns and, if I'm able to file March 1, payments missed in February wouldn't even report as past due to the CRAs anyway, so I am safe to stop payments that are due in February?  

I am going to be meeting with a few local attorneys, but I know they don't always understand and pull in every consideration so that's why I'm turning to you fine folks for experience, insight, and any suggestions. 

unemployment and BK together is not a fun or stress less process and don't want to leave anything to chance or risk messing something up. 

I appreciate anything you can contribute or add to help guide this process. Happy New Year everyone!

[despritfreya]

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@dryanaz80 wrote:

Title is self explanatory.  Looked online and at IRS publications and there is a carve out rule where employer settlements or - payments made for a release of claims - which is subject to an NDA and strictly confidentiality . . . is in a gray area where it doesn't appear to be taxable due to the confidentiality agreement. . . .  However, even if the amount I received is not taxable, would this be seen/treated as income for bankruptcy purposes? This has major implications on when i can file because the settlement/payment  was in September 2021, so I'd have to delay my filing to have this month fall off my 6 month look back....

Below is the definition of “current monthly income” for bankruptcy purposes. As you will see, it does not matter if the funds are taxable.  Further, unless the source of money is specifically excluded from the definition, it is included if received within that 6 month window. (Any emphasis below is added.)

Des.

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11 U.S.C. §101(10A)

The term “current monthly income”—

(A) means the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income, derived during the 6-month period ending on—
(i) the last day of the calendar month immediately preceding the date of the commencement of the case if the debtor files the schedule of current income required by section 521(a)(1)(B)(ii); or
(ii) the date on which current income is determined by the court for purposes of this title if the debtor does not file the schedule of current income required by section 521(a)(1)(B)(ii);

and

(B)
(i) includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents (and in a joint case the debtor’s spouse if not otherwise a dependent);

and

(ii) excludes—
(I) benefits received under the Social Security Act (42 U.S.C. 301 et seq.);
(II) payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes;
(III) payments to victims of international terrorism or domestic terrorism, as those terms are defined in section 2331 of title 18, on account of their status as victims of such terrorism;
(IV) any monthly compensation, pension, pay, annuity, or allowance paid under title 10, 37, or 38 in connection with a disability, combat-related injury or disability, or death of a member of the uniformed services, except that any retired pay excluded under this subclause shall include retired pay paid under chapter 61 of title 10 only to the extent that such retired pay exceeds the amount of retired pay to which the debtor would otherwise be entitled if retired under any provision of title 10 other than chapter 61 of that title; and
(V) Payments made under Federal law relating to the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the coronavirus disease 2019 (COVID–19).

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[dryanaz80]

I appreciate your reply and I saw the taxable part, ut would I not be violating the NDA y sharing the amount and name of company with BK court, potential new attorney, and any other person or agency with access to view my records? 

[jmw1]

Generally, you should assume anything you submit in your case will become public unless told otherwise by your attorney. For example, if you submit paystubs, any stranger can see it and there's nothing you can do to stop them. I'm not sure about settlements, but that may become public record as well since it changes the numbers in your bankruptcy. So you might need to wait it out.

When you know you are filing and at the same time insolvent, that's the time you stop paying minimums on every unsecured creditor and any secured creditor where you're going to give up the property in bankruptcy.  It takes months before a creditor might sue you after missing the first minimum payment.

[despritfreya]

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@dryanaz80 wrote:

/. . . But would I not be violating the NDA by sharing the amount and name of company with BK court, potential new attorney, and any other person or agency with access to view my records? 

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1.  The "name" of the source of the income is not listed on the Means Test portion.

2.  At least as of 2010, the UST considered litigation proceeds as income when completing the means test analysis.  I would conclude this includes settlement proceeds:

Line 10, Income from all other sources.
*Includes net gambling, cash gifts, litigation proceeds, and trust income. . .
*Whether it meets IRS test for income could be relevant, but whether it is taxable
income or non-taxable income is not a factor.

See:  https://www.justice.gov/sites/default/files/ust/legacy/2015/03/03/ch7_line_by_line.pdf

3.  All sources (in general terms) of income and the amount (year to date, last year, the year before) are listed on the Statement of Financial Affairs.  This has nothing to do with means testing and everything to do with a full disclosure of a debtor's financial dealings.

While you should discuss this with a well qualified attorney, if you came into my office, I would want to read the entire NDA as there is probably a provision dealing with disclosure if legally required to disclose.  Further, even if such a provision did not exist, I would probably tell you it gets disclosed (at least the $ amount) since your "right" to file bk is based upon you being 110% truthful in disclosing, disclosing, disclosing your financial picture.   If you wanted to seek some sort of protective order from the bk court, I would charge you for such a Motion (we bill hourly)and warn you that you may not "win" the argument.  Maybe you could file the information under seal but, again, such would be by Motion.

Des.