How Does a Chapter 7 Work If Married and Living Separately?

Chapter 7 bankruptcy allows you to get rid of most, if not all, of your unsecured debts without paying any more money to the discharged creditors. Most unsecured debts are eligible for discharge in Chapter 7, including medical bills, personal loans, credit cards, and many others. Therefore, married couples filing Chapter 7 can get a fresh start to rebuild after a financial crisis. However, what considerations should you consider when filing bankruptcy while separated?

Married and Filing a Joint Chapter 7 Petition

Most married couples file a joint Chapter 7 bankruptcy case instead of filing separate cases. The advantages of filing a joint Chapter 7 case include, but are not limited to:

• Less costly because you pay one fee for your bankruptcy attorney, court filing, and bankruptcy courses
• Discharge joint debts and individual debts at the same time
• More efficient because you sign one set of bankruptcy schedules and attend hearings together
• Maximize bankruptcy exemptions to protect assets from the Chapter 7 trustee

However, there could be circumstances where it might be more beneficial to file an individual Chapter 7 case. For example, a spouse with very little debt might not benefit from filing for bankruptcy. Another consideration is that prior bankruptcy filings could make a spouse ineligible for another bankruptcy discharge right now. In other cases, income considerations could be a concern if the couple files a joint Chapter 7.

Another situation that often arises is filing bankruptcy while separated from your spouse.

The Basic of Filing Chapter 7 as a Married Couple

When filing a joint Chapter 7 case, the spouses must include all household income and expenses for the Means Test. In other words, you include your income and your spouse’s income when calculating the household’s average monthly income and median monthly income.

The Chapter 7 Means Test calculates whether you are eligible for a Chapter 7 bankruptcy discharge based on your income and household size. If your household income is more than the median income for your state, you might not be eligible to file Chapter 7. However, when you deduct your allowable monthly expenses from your average monthly income, you could be eligible for Chapter 7 if your disposable income is negative or very low.

You must still include your spouse’s income if you live in the same household when filing an individual Chapter 7 bankruptcy case. It does not matter that your spouse is not filing bankruptcy. Unfortunately, that could mean you fail the median income test because you and your spouse earn too much money to file Chapter 7.

However, hope is not lost yet.

When you complete the second portion of the Means Test, you can include a marital adjustment deduction for your non-filing spouse. A marital adjustment includes personal expenses that your spouse pays from their income that would not be considered your household expenses. Examples could include credit cards in their name only, child support, student loan payment, and alimony. The marital adjustment deduction could reduce disposable income sufficiently for you to qualify to file Chapter 7.

What happens when spouses are separated? How does filing bankruptcy while separated impact the Means Test and other bankruptcy matters?

Filing Bankruptcy While Separated From Your Spouse

Couples who are separated can file joint or individual bankruptcy petitions. In some cases, filing a joint Chapter 7 while separated might have better advantages than filing separately. However, there could be instances where filing bankruptcy while separated as an individual could provide a better outcome.

You can file Chapter 7 with or without your spouse, whether you are living with your spouse or separated. You cannot file a joint bankruptcy petition without your spouse’s consent. However, you are free to file an individual Chapter 7 whether you are legally separated or merely decided to move out of the home.

Do I Count My Spouse’s Income for the Means Test if We Are Separated?

One of the most significant impacts a separation has on filing Chapter 7 is calculating the Means Test. Whether you count your spouse’s income on the Means Test depends on several factors.

Generally, if you are married filing a joint Chapter 7, you would:

• Include income for both spouses on the Means test if you are living separately. You would also include the expenses from each household.
• Include the income for both spouses on the Means Test if you are living together, as well as the expenses for your household.

However, if you married filing an individual Chapter 7 while separated, you would:

• Not include your non-filing spouse’s income on your Means Test if you are living in and maintaining a separate household. Likewise, you cannot include your non-filing spouse’s expenses on your Means Test.
• Include your non-filing spouse’s income on your Means Test if you are separated but living in the same home. You would also complete the marital adjustment to deduct your spouse’s expenses they pay solely from their income.

You could have a better chance of qualifying for Chapter 7 when filing bankruptcy while separated if you maintain separate households. Sometimes, it is possible to file bankruptcy without a lawyer. However, filing bankruptcy while separated can complicate a bankruptcy proceeding. Therefore, it is always best to seek legal advice from an experienced Chapter 7 bankruptcy lawyer before filing a bankruptcy case.

Learn how to schedule a free bankruptcy consultation with a bankruptcy lawyer near you using our free Bankruptcy Attorney Fee and Qualification Calculator.

How Does Filing Bankruptcy While Separated Impact My Spouse?

Your individual bankruptcy filing should not impact your spouse’s credit rating. However, an individual Chapter 7 bankruptcy case could have consequences for your spouse if you have joint debt,

If you discharge your legal liability for a joint debt through Chapter 7, the creditor looks to the co-signer for payment. For example, suppose you owe $10,000 on a joint credit card with your spouse and file Chapter 7. Your bankruptcy discharge eliminates your legal responsibility for the credit card debt.

However, because your spouse was a co-signer for the credit card, the company demands payment from your spouse. As a result, your spouse is now responsible for the entire debt.

It is important to note that a bankruptcy discharge does not necessarily relieve you of debts a family court orders you to pay during a divorce action. Therefore, if you struggle with debts you cannot pay and are separated from your spouse, the best way to protect yourself is to talk with a bankruptcy attorney and a divorce lawyer. The attorneys can work together to find the best possible solution to the problem.

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Are There Other Ways to Get Out of Debt Without Filing for Bankruptcy?

Bankruptcy is an affordable debt relief option for many people. However, there could be other options that might have more advantages based on your situation.

At Ascend, we explore various options for getting out of debt, including debt settlement, Chapter 13, debt management, and debt payoff planning. We can help you develop a plan to get out of debt that works best for your situation.

Call (833) 272-3631 or contact us online for a free case evaluation.