Did you know that Bankruptcy Courts consider non-filing spouse’s income in determining the debtor’s eligibility to file bankruptcy? Bankruptcy Advocates’ Southern Illinois Bankruptcy Attorney, Marcus H. Herbert, Attorney at Law, explains how the determination works.
If only one member of a couple files a voluntary petition and becomes a debtor in bankruptcy, the debtor must disclose the total family income, including that of the non-filing spouse. If the total income exceeds certain limits, the debtor is ineligible to get relief under Chapter 7 (total bankruptcy).
Why Total Family Income?
You may wonder why the entire family income is considered if
only one person has the debt. The reasoning for this is a good faith type of
rule. If the family is well off enough to pay some of its debt, then it ought
to do so, rather than having all unsecured debt discharged without payment
under Chapter 7. The basic assumption is that all of the non-filing spouse’s
income is available to pay the debts of the debtor. This means both spouses’
income must be reported.
However, the law does allow the debtor to claim an adjustment to the marital income to allow for the fact that the non-filing spouse may have his or her own financial obligations that must be paid. The adjustment takes into consideration that the non-filing spouse’s credit would be ruined and he or she would be sued for default on his or her car payment, credit cards, or other debts if those dollars were used instead to fund up the debtor’s bankruptcy repayment plan.
So far, so good. This all seems logical…except in one
An Exception to the Rule
The United States Trustee objected to the debtor’s Chapter 7
filing, which included several claimed deductions from total family income to
allow for payments on debts solely in the non-filing spouse’s name. These
included the house and a truck, which were only in the non-filing spouse’s name
and which she made all the payments on. Other deductions were claimed on a
student loan in her name, a 401k loan in her name, and credit cards only in her
name. The US Trustee argued that those deductions were not legitimate, and
instead of the non-filing wife making those payments, she should divert those
funds to her husband’s bankruptcy case so he could fund a Chapter 13 repayment
plan of his debt – leaving her debt unpaid.
Upon receipt of the US Trustee’s argument, the debtor and
his wife were very upset. They asked how can this possibly be right, fair, or
Case Has a Happy Ending
The couple consulted with a professional bankruptcy attorney to help represent them. Fortunately, the US Trustee changed his mind and relented after being presented with documents proving the truth of the wife’s debts and an explanation of the consequences that not paying them would cause. The take-away point is to be prepared to produce debt and income records for both spouses, even if only one is filing for bankruptcy.
Southern Illinois Bankruptcy Attorney law firm Bankruptcy Advocates
Southern Illinois Bankruptcy Attorney law firm Bankruptcy
Advocates is located in Carbondale and serves a wide geographic community
including Carbondale, Murphysboro, Marion, West Frankfort, Johnston City,
Benton, Herrin, DuQuoin, and Pickneyville. We are a debt relief agency. Our
southern Illinois bankruptcy attorneys help people file for relief under the
Bankruptcy Code. Give us a call at 618-549-9800 or email us at [email protected]
to speak about your case or legal matter. Convenient appointment times are