Married couples considering bankruptcy may file bankruptcy without both spouses filing (formally participating in) a bankruptcy case. Although spouses are not both required to file bankruptcy, the non-filing spouse’s income must still be listed on the filing spouse’s bankruptcy documents, such as Schedules I and J, as well as the Statement of Financial Affairs. More importantly, the non-filing spouse’s income must be added to the calculation of household income on the Means Test.
The “Means Test” is the test for whether a prospective bankruptcy debtor is eligible to file a Chapter 7 bankruptcy case. In most cases, a Chapter 7 bankruptcy case filing may be preferable since it lasts for four to five months while a Chapter 13 bankruptcy case lasts three to five years. The Means Test calculates household income and even though a spouse may not file jointly, the non-filing spouse’s contribution to the household must nevertheless be considered.
Federal bankruptcy law uses an expansive definition of “income” for the Means Test. Any source of income unless specifically included by federal law must be included. For means test purposes, debtors must calculate their income for the last six full months before the month of the day that the bankruptcy case is filed. For example, if a case is filed on July 18, 2021, no income received from July 1 through July 18 is included in the calculation. Rather, income is calculated for the period of January 1, 2021, through June 30, 2021.
It may be a concern that since a spouse’s income must be included in the Means Test, it may be difficult to qualify for a Chapter 7 bankruptcy. However, by using the marital deduction a filing spouse may still qualify for a Chapter 7 bankruptcy filing. Using the marital deduction may indicate that household income is not enough to pay current financial obligations and help the filing spouse qualify for a Chapter 7 case filing.
A non-filing spouse’s income is listed on Official Form 122A. The first part of the Means Test compares household income to the state’s median household income for a household of the debtor’s size. For anyone who does not qualify under the first part of the Means Test because household income exceeds the median household income in Utah, then the second part of the Means Test must be completed, which considers deductions and monthly expenses.
Even though one spouse is not filing bankruptcy, all preestablished monthly expenses, including housing, food, and utilities for the non-filing spouse may be included in the Means Test calculation. This serves the purpose of offsetting the inclusion of the non-filing spouse’s income in the same calculation.
The marital adjustment deduction allows a filing spouse to deduct any expenses that his or her non-filing spouse pays that are separate from household expenses. The Means Test considers that a non-filing spouse may not spend all of his or her income on household expenses. Some examples of expenses that may be considered marital deductions are credit card payments that a non-filing spouse will have to continue paying after the filing spouse’s bankruptcy is completed. Another example is a domestic support obligation such as alimony or child support.
Using the marital deductions requires proof in the form of documentation (receipts, account statements, etc.) that supports the non-filing spouse’s monthly expenses. The marital deduction may make the difference on whether a person qualifies for a Chapter 7 bankruptcy. As we have assisted many married couples who have filed jointly, the experienced attorneys at the Morrison Law Group can assist any spouse who is not jointly filing a bankruptcy case.
One of the Morrison Law Group’s qualified and knowledgeable bankruptcy attorneys may answer any questions about filing a Chapter 7 or Chapter 13 bankruptcy case. Call 801.456.9933 today to schedule a FREE consultation. We have locations in Ogden, Logan, Sandy, Orem, and St. George to serve the residents of the counties of Weber, Cache, Salt Lake, Utah, Morgan, Davis, Washington, and surrounding areas.