How is my Spouse’s Income handled in my Bankruptcy? Treatment of Non-Debtor Spouse Income in Bankruptcy

Introduction:

Bankruptcy laws consider the financial circumstances of both spouses in a marriage, including the income of a non-debtor spouse. This article aims to provide a detailed overview of how non-debtor spouse income is treated in bankruptcy, specifically examining its application in the means test for Chapter 7 bankruptcy and its relevance in Chapter 13 bankruptcy.

Does my spouse need to file bankruptcy with me? No, your spouse is not required to file for bankruptcy with you. Each individual has the right to file for bankruptcy independently, regardless of their marital status. However, it's important to consider the implications of filing individually or jointly based on your specific circumstances. Consulting with a bankruptcy attorney can provide guidance on whether filing jointly or individually would be more beneficial for your overall financial situation. In some situations, it is beneficial to have both spouses file bankruptcy together. In other situations, it is not necessary for spouses to file together. There are often good reasons why both spouses may not want to file bankruptcy together, including the ability to access credit, or if one of the spouses does not have any debt.

How is my spouses income treated in my bankruptcy case?

Understanding the Means Test in Chapter 7 Bankruptcy:

Chapter 7 bankruptcy involves liquidating non-exempt assets to repay creditors. To qualify for Chapter 7, debtors must pass the means test, which determines their eligibility based on income. The means test takes into account the combined household income, including that of the non-debtor spouse, to assess whether the debtor's income falls below the state's median income.

1. Calculation of Household Income:

The means test calculates the average monthly income over the six months preceding the bankruptcy filing date. This includes the income of both the debtor and the non-debtor spouse. The income considered comprises various sources, such as wages, self-employment income, rental income, dividends, and other forms of income.

2. Deductions and Allowances:

Certain deductions and allowances are subtracted from the household income to arrive at the "disposable income." These deductions may include expenses such as taxes, mortgage payments, healthcare costs, and necessary living expenses. The disposable income is a key factor in determining eligibility for Chapter 7 bankruptcy.

3. Impact of Non-Debtor Spouse Income:

The non-debtor spouse's income is relevant in the means test as it contributes to the total household income. If the combined income is below the state's median income, the debtor qualifies for Chapter 7. However, if the combined income exceeds the median, additional calculations and deductions are applied to determine eligibility.

Treatment of Non-Debtor Spouse Income in Chapter 13 Bankruptcy:

Chapter 13 bankruptcy involves a repayment plan where debtors retain their assets and make monthly payments to creditors over a specified period, usually three to five years. Non-debtor spouse income plays a different role in Chapter 13.

1. Determining Disposable Income:

In Chapter 13, the debtor's disposable income, which factors into the repayment plan, includes the income of both the debtor and the non-debtor spouse. This comprehensive income assessment helps establish the debtor's ability to make regular payments to creditors.

2. Calculation of Repayment Amount:

The repayment plan in Chapter 13 is based on the debtor's ability to repay debts over time. The non-debtor spouse's income is considered when establishing the debtor's disposable income and calculating the repayment amount. The plan is structured to accommodate the debtor's income, expenses, and the non-debtor spouse's income contribution.

3. Protection of Non-Debtor Spouse's Income:

The non-debtor spouse's income is generally protected in Chapter 13 bankruptcy, meaning it is not directly used to satisfy the debtor's pre-existing debts. However, it may influence the repayment plan's terms, duration, and the amount paid to creditors. The Chapter 13 trustee will often seek to attempt to include as much of the non-debtor spouse’s income in the repayment terms. Therefore, having a qualified bankruptcy attorney to advocate for you will often make the difference between a higher or lower chapter 13 trustee payment.

Conclusion:

Non-debtor spouse income plays a significant role in bankruptcy proceedings, particularly in Chapter 7 and Chapter 13 cases. In Chapter 7, the combined income is assessed in the means test to determine eligibility, while in Chapter 13, it affects the debtor's disposable income and repayment plan. It is important for individuals considering bankruptcy to consult with an experienced bankruptcy attorney to understand how non-debtor spouse income will be treated and its implications for their specific situation. By having a clear understanding of the treatment of non-debtor spouse income, individuals can navigate the bankruptcy