Do I Need to Declare My Spouse’s Income in a Bankruptcy Filing?
One of the many questions that comes up when it comes to filing for bankruptcy is whether or not the issue of a spouse's income needs to be included as part of means testing in a Chapter 7 or Chapter 13 bankruptcy. The answer varies, however, based on the circumstances currently between you and your spouse.
In means testing, the filer's income is analyzed to see how it matches up against the state's median income. For those whose income is at or below the median, Chapter 7 bankruptcy becomes available. Those who fall above the median, however, are generally routed through Chapter 13 instead, and when a spouse's income is considered, that spouse's income becomes part of what's known as Form 22C, which determines overall disposable income and becomes part of the basis for determining the repayment amounts in the payment plan that comes with a Chapter 13 bankruptcy.
Indeed, a spouse's income could make a filer ineligible for a Chapter 7 bankruptcy, and may also make payments under a Chapter 13 artificially high, which could be a problem if the spouse in question also has bills and expenses.
There is one point, however, that removes a spouse's income from consideration: if he or she is maintaining a separate household from the filer, then that income is not factored into the bankruptcy filing. If he or she doesn't maintain that separate household, then the income is considered. However, a point known as the “marital adjustment deduction” can step in, which means a filer can deduct personal expenses paid with said spouse's money that doesn't go toward the support of the household. Some examples of these include student loan payments the spouse makes directly, payments on credit card debt, or deductions a paycheck makes to a separate retirement account. There is said to be some disagreement among various courts, however, as to just what qualifies as a deduction under this principle, so smart filers will, as ever, consult a qualified bankruptcy attorney to get the straightest possible information for a particular area. It may be possible to modify a spouse's salary to better fit a bankruptcy filing plan by adjusting some of these expenses ahead of the filing. There are even some different rules based on same-sex couples, so the value of consulting an attorney is clear. Working with a bankruptcy attorney not only gets a filer the best information, as well as advice, but it makes the likelihood of a successful filing much greater.
While many will have to consider a spouse's income in terms of a bankruptcy filing, there are some things that potentially can be done to lessen the blow and give filers some breathing room. There are many things to consider going into a filing, and spouse's income is just one of these. Having a full understanding of the issues going into the filing will improve the likelihood of the best outcome, which is exactly what everyone going into a bankruptcy filing wants to see in the first place.