Many of the individuals who come to us for Chapter 7 or Chapter 13 protection derive at least some income from online sales on sites such as eBay, but have incomplete or non-existent records of those transactions.  This can complicate the preparation of their petition.  Debtors need to account for their online earnings for median income/means test purposes.  Although eBay income may not be salary income for tax purposes, but it could be classified as ‘income from operation of business.’ For median income/means test, purposes, debtors need to include your auction earnings during the six month period preceding the current month.

Some bankruptcy attorneys have suggested that, if the eBay income will not be regular – for example, if the client or prospective client has sold off everything they plan to sell off, an argument could be made that the eBay income should not count for median income test purposes.  However, hat this position will likely be challenged and lead to court appearances and higher attorneys fees.

In some cases, waiting a month or two in order to dilute the impact of the eBay earnings can save the debtor 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), some bankruptcy attorneys have suggested that eBay income should not count. Presumably the debtor has limited household items to sell and the Schedule I & J budget reflects future income and expenses. If they are running an active eBay business however, they need to include the average monthly income as income on Schedule I.

Records of eBay sales may not be reviewed at all, or the Trustee could request two or even three years of statements.  As is often the case in bankruptcy matters, full disclosure is essential.

-Drew Broaddus