There are several issues to address when a person is married and filing bankruptcy separately. But, first, let’s respond to the above question. Yes, you will need your spouse’s information if you file for bankruptcy relief.
Let’s look at why you need your spouse's income and expenses to file for bankruptcy relief before jumping into whether filing a joint bankruptcy or individual bankruptcy is right for you.
When filing for Chapter 7 or Chapter 13 bankruptcy relief, you must report all household income. It does not matter whether you or your spouse earns the income. If you and your spouse live together, you must report your income and your spouse’s income. However, suppose you and your spouse maintain completely separate households, with each of you being entirely responsible for the household where you live. In that case, you might not need to include your spouse’s income in your Chapter 7 or Chapter 13 bankruptcy case.
There could be very limited exceptions to this rule. For example, you and your spouse are separated but live in the same home for the benefit of your children or economic purposes. Other than being married, your lives are separate. For example, you maintain separate bank accounts and have no joint debts or property. You split all household bills equally, or one spouse pays the other spouse rent payments.
If this scenario applies in your case, consult a bankruptcy lawyer before filing a bankruptcy case. An experienced bankruptcy lawyer is your best source of advice regarding complicated issues. Winning an argument to exclude a spouse’s income from your bankruptcy filing would be an uphill battle.
To win the argument that your spouse is just a “roommate,” you would need overwhelming evidence that you or your spouse is technically “renting” a portion of the house to avoid including your spouse’s income in the Bankruptcy Means Test.
Even if you could win that argument, the “rent” you receive from your spouse would be included in your bankruptcy case as income. It is nearly impossible to prove your spouse is merely a roommate paying rent. Therefore, be prepared to include your spouse's income in your Chapter 7 or Chapter 13 bankruptcy case.
The good news is that you get to include your spouse’s expenses in the household budget for a bankruptcy filing.
Therefore, if your spouse has debts in her name that she must pay, she can include those debts in the household budget (the “marital deduction”). Of course, your bankruptcy filing does not wipe away debts in your spouse’s name only, but including those debts in the household budget could help you qualify for Chapter 7 or reduce your payments under a Chapter 13 filing.
Most spouses file a joint bankruptcy case. Couples may take advantage of the many advantages of filing a joint Chapter 7 or Chapter 13 case. Advantages of joint bankruptcy cases include:
With that said, some situations might justify being married and filing bankruptcy separately. For example, the non-filing spouse does not have any debts in their name or joint debt with the spouse. Therefore, filing for bankruptcy would not be in the best interest of the non-filing spouse.
NOTE: If you live in a community property state, talk with a bankruptcy attorney about your situation. Both spouses are equally liable for marital debts in a community property state. Get the facts from a bankruptcy lawyer before deciding what works best for you.
A spouse who owns substantial equity in separate property might choose not to file a joint bankruptcy case with their spouse. The spouse’s separate assets would become part of the joint bankruptcy estate by filing a joint bankruptcy case. A Chapter trustee could liquidate the assets to pay unsecured debts. Again, talk with a bankruptcy lawyer if you have substantial assets and your spouse wants to file for bankruptcy relief.
Some couples may need to file different chapters of bankruptcy. For example, you owe back domestic support payments (alimony and child support). Your spouse is not responsible for this debt. You file under Chapter 13 to enter a repayment plan to spread the past-due domestic support payments over 60 months. On the other hand, your spouse files under Chapter 7 to eliminate her debts in about six months.
No, not necessarily. The Bankruptcy Code bases the income test for a bankruptcy discharge under Chapter 7 on gross household income. However, it bases income levels on the number of people in your home.
For example, let’s assume you are filing Chapter 7 in South Carolina. The Bankruptcy Means Test measures your average income against the median income for South Carolina residents. NOTE: The government updates the figures for the means test every few months, so always check to ensure you have the correct figures.
If you file a Chapter 7 petition on March 14, 2022, the median income for a one-person household is $49,999. If your average yearly income is below $49,999, you “pass” the means test and should be eligible for a bankruptcy discharge under Chapter 7.
However, if there are two people in your household, the median income increases to $64,874, and for three people it increases to $71,757. That does not mean that each person has to be an adult or contribute to the household income. If your spouse has no income, you still get to count them in the number of people in your household.
Let’s say that you and your spouse work and have two dependent children at home. The median income for a household of four would be $86,278 in South Carolina on March 14, 2022.
If you “fail” the Chapter 7 means test, you could still receive a bankruptcy discharge if your disposable income is zero or below a specific amount.
If you and your spouse earn above the median income, you might qualify for Chapter 7 by deducting monthly expenses from your income to calculate disposable income. Disposable income is money you can use to pay creditors after deducting allowable monthly expenses from your income.
If you are confused about being married and filing bankruptcy separately, do not worry. Attorneys who do not practice bankruptcy law admit to not understanding bankruptcy rules.
We can help! Ascend has several free tools you can use to help you decide if you should file Chapter 7 or Chapter 13. You can access these tools free of charge on our website at the links below:
If you are still unsure what to do, contact us to speak with one of our team members. It does not cost you anything to talk with us.
Most of our services are free to use. We want to help you find the quickest, least expensive way out of debt to put you back on the road to financial recovery. At Ascend, we have your best interest as our only priority.
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