THE new bankruptcy law requires debtors to attach proof of income for the last 60 days before the date of filing of the Chapter 7 petition. Section 521(a)(1)(B)(iv) requires ‘Copies of all payment advices or other evidence of payment received within 60 days before the date of the filing of the petition, by the debtor from any employer of the debtor.’ In practice, we attach debtor paystubs for the last 2 months pre-filing to the Chapter 7 petition upon filing. Chapter 7 trustees and US trustees examine the paystubs to determine if the means test has been properly calculated. If the debtor is self-employed but draws a salary from the business every month, it is the better part of caution to attach his paystubs for the last 2 months. But normally, self-employed debtors do not have to attach paystubs because strictly speaking debtor does not have an employer. To illustrate, a dentist who has his or her own clinic doesn’t have to attach paystubs because he or she is self-employed. Proof of social security income is not a paystub because a social security check is not from an employer of the debtor. However, a pension check could be construed to come from the employer, hence, proof of pension income 60 days pre-filing should be attached to the Chapter 7 petition to comply with Section 521(a)(a)(B)(iv).
What happens when the required paystubs are not submitted with the Chapter 7 petition? Section 521(i) states that ‘Subject to paragraphs (2) and (4), and notwithstanding section 707(a), if an individual debtor in a voluntary case under Chapter 7 or 13 fails to file all of the information required under subsection (a)(l) within 45 days after the date of filing of the petition, the case shall be automatically dismissed effective on the 46th day after the filing of the petition.’ Therefore, failure to submit paystubs results in automatic dismissal of the Chapter 7 case.
What happens when debtor does not submit paystubs but files instead a payment advice that included year-to-date earnings and payroll deductions, and a report that showed debtor’s gross earnings for each pay period, i.e. one paystub only? Will this satisfy Section 521(a)(1)(B)(iv)? Ruling in Community Bank v. Riffle (2nd Cir. 08/09/10), the 2nd US Circuit Court of Appeals concluded that the debtors satisfied Section 521(a)(1)(B)(iv) by filing a payment advice that included year-to-date earnings and payroll deductions, and by submitting a report that showed the debtor’s gross earnings for each pay period; in other words, one pay stub. Here, debtors filed the last payment advice Mr. Riffle received during the 60 day period preceding the bankruptcy filing. He said that was the only one he had. He also said that one was enough because it included his earnings and deductions for that pay period, and identified his year-to-date earnings and payroll deductions in various categories. Debtors also filed a chart entitled ‘Sales Earnings Report,’ which was issued by debtor’s employer and showed his gross earnings for each pay period from the beginning of the year. After 45 days passed, Community Bank, which held the mortgage on the debtors’ home, asked the bankruptcy court to confirm that debtors’ bankruptcy was dismissed due to failure to file all of his pre-petition payment advices. The bankruptcy court found that the final payment advice and sales earning report were ‘Other evidence of payment.’ The District Court affirmed, as did the 2nd Circuit Court of Appeals.
The Court of Appeals favored the payment-focused interpretation and said that ‘The law requires a debtor to file either all payment advices received within 60 days prepetition’ or ‘Other evidence of payment received within 60 days before the date of the filing of the petition.’ The court noted that this approach was adopted by the 10th Circuit in Re Miller in 2008. Of the two approaches, the document focused approach and the payment focus approach, the 2nd Circuit concluded that the payment focused approach was better because it made more sense.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
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