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I’m filing bankruptcy – do I have to consider my spouse’s income? “It’s complicated.”

Posted on Feb 20, 2014 in Bankruptcy, Chapter 13, Chapter 7

If you are filing for bankruptcy, either under chapter 7 or chapter 13, your income matters.  Why?  People who make more than the median income – the income more than 1/2 of the people make – are presumed to be abusing the system if they file a bankruptcy under chapter 7.  For an individual, that’s around $40,000 and for a family of 4 that’s around $80,000. It’s better for most people to file chapter 7 than chapter 13 because in chapter 7, you are done with your bankruptcy in 4 months.  In chapter 13, you pay more fees and you make monthly payments to a chapter 13 trustee toward payment of your debts for 5 years.  This can be a good deal if you are trying to save property or catch up with mortgage arrears. It’s not such a good deal if you have a very little non-exempt property which you might lose in a chapter 7.

When you make more than the median income, we have to figure out if you overcome the presumption of abuse. We do that by analyzing your income and expenses under the government’s Means Test as adopted by the Bankruptcy Code.

Many of our clients are married.  Frequently, one person in a marriage has debt and needs to file for bankruptcy but the other does not. Then what happens?

It’s not all that simple.

We have to figure out your projected disposable income.  To figure this out, we need to know not only what you make and what your expenses are, we also need to know what your spouse makes and what your spouse’s expenses are. That’s because anything your spouse makes beyond your spouse’s own separate expenses are deemed to be available to you as disposable income to allow you to pay some of your debts.  This additional disposable income might make a difference in determining (a) whether you are eligible to file a case under chapter 7 or (b) how much you’ll have to pay as a monthly payment if you have to file a case under chapter 13.

It might seem unfair that your spouse’s income must be considered if you are filing a bankruptcy case and your spouse is not.  But Congress has spoken  and we must help you obey the rules.

The good news is that if you file a bankruptcy case and your spouse does not, your bankruptcy case has no adverse impact on your spouse’s personal credit.

It’s complicated when one spouse files for bankruptcy and the other does not.  Lakelaw’s board certified bankruptcy attorneys have great experience with complex cases like yours.  Count on us to help you when you have tricky bankruptcy questions.   Call Lakelaw in Chicago or Waukegan at 847 249 9100 or in Kenosha at 262 694 7300.

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