If a married couple decides to file a Chapter 7 bankruptcy together, they can file a joint petition, and both of them will get the benefit of the discharge and negative credit impact of a bankruptcy filing. In such cases, whether the couple qualifies for Chapter 7 depends largely on their combined income in the six-month period prior to the anticipated bankruptcy filing date.
There are times, though, when only one spouse decides to file, and the other does not want to be involved. There are a few reasons why only one spouse would choose to file. If the marriage was recent, one spouse may not be liable on any of the debt (because it was incurred prior to marriage) and does not need a discharge. If the couple has kept their accounts carefully separated, one spouse may not have liability for some or all of the debt of the other even if most of the debt was incurred during the marriage. Leaving one spouse out of the bankruptcy filing can maintain a better credit score for the non-filing spouse in some cases.
When only one spouse files, the income of the non-filing spouse is still counted to determine basic qualifications for Chapter 7 bankruptcy. The Means Test clearly requires that the non-filing spouse’s gross income be listed. However, there are some adjustments that can be made to the non-filing spouse’s income:
• Most payroll deductions will not count;
• Payments on debts that are only the responsibility of the non-filing spouse also do not count (in most cases)
• Payments on tax debt of the non-filing spouse are deducted
• Payments on student loans of the non-filing spouse are deducted
• Prior support or alimony payments of the non-filing spouse are deducted
• Other payments made by the non-filing spouse that the filing spouse can show were not to his/her benefit or his/her dependent’s benefit (usually children).
The adjustments to the non-filing spouse’s income will, in some cases, be the difference between whether a debtor qualifies for Chapter 7 bankruptcy. It is important to discuss your options with an attorney prior to filing, especially if you are filing without your spouse, who has income.
For more information or a consultation, please call 661-210-5657, or e-mail mjf4bk@ca.rr.com.