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How Is My Spouse Impacted by My Bankruptcy Filing?

Married bankruptcy debtors often want to know if they can file bankruptcy separately from their spouses. Then, if they do so, what impact will their bankruptcy filing have on their non-filing spouse? The scenario is more common than one would think in today's complex financial environment.

Married Debtors Can File Individual, Separate Bankruptcy Cases

Simply put, married debtors can file individual bankruptcy cases under either Chapter 7 or Chapter 13. These bankruptcy cases can be filed individually without including the non-filing spouse.

Non-Filing Spouse's Information Will Likely Be Evaluated in Spouse's Individual Bankruptcy

Yet, as with most things in life, there are caveats. In this instance, the non-filing spouse's income and expense data will likely be taken into account in the debtor's filing. In addition, the non-filing spouse's assets and property may likewise be considered within the debtor’s bankruptcy case evaluation process.

How Does a Bankruptcy Attorney Evaluate Whether a Married Debtor Should File Bankruptcy Individually?

How does the evaluation process work? Bankruptcy attorneys, during client intake interviews, generally first examine the prospective debtor's finances. They evaluate debt burdens to see if costs, inconveniences, and disadvantages of bankruptcy filing are worthwhile, given total debts owed. Pending mortgage foreclosures and debts over $10,000 may still warrant bankruptcy filing, for example.

If debt is sufficient to warrant filing, counsel then examines the household's total income. This evaluation occurs even if the debtor's spouse is not going to file for bankruptcy. This is done even in non-community property states. The latest bankruptcy laws' median income test mandates that counsel examine the household's total income. When the household's combined total income is below the state's median income level, the debtor has passed the median income test. Counsel then advances to budget preparation for bankruptcy filing purposes.

Alternatively, if the combined household's income is above the state's median income level, the means test must be conducted. Counsel may subtract from total gross household income the income of the non-filing spouse that is not contributed to payment of household bills. The resulting figure is deemed the current monthly income. That income figure is used to calculate disposable income pursuant to the means test. In the bankruptcy budget preparation process, particularly for Schedules I and J, a non-filing spouse's separate expenses are taken into account. Those expenses reduce the level of available disposable income.

Overall, the U.S. Trustee and standing bankruptcy trustees will try to make sure that married debtors who file individual bankruptcy cases are not manipulating the bankruptcy system or filing in bad faith in abuse of the bankruptcy system. The overarching standard of reasonableness is applied to all scenarios.

Most Separate, Individual Bankruptcy Cases Filed by Married Debtors Are Uneventful

Married debtors often file separate bankruptcy cases, independently. The situation is not unique and is rather common. In most circumstances, there should not be any heightened concerns or unusual issues. If you have specific questions or concerns about consumer bankruptcy filings, it is prudent to promptly consult a bankruptcy attorney.