You have a lot to think about when filing for bankruptcy, and in many cases, you’ll have even more to consider if you are married. One of the biggest challenges faced by those filing for bankruptcy when they are married is how filing will affect their marriage. The good news is there are tools available that can make it easier for both spouses when only one is filing.
It is possible to file for bankruptcy with your spouse, but doing so isn’t necessary. This is especially helpful to those who are still legally married, but not living their financial and/or emotional lives as a couple, but this can also be a helpful option for those living as a married couple but not ready for both spouse’s to file for bankruptcy.
Should you choose to file separately, you have the option of using the marital adjustment deduction.
Bankruptcy Means Test
The marital adjustment deduction enables those filing for bankruptcy to separate some of their expenses from their spouse’s, reducing the spouse’s adjusted gross income and potentially making it possible for the filing spouse to qualify for Chapter 7 bankruptcy. This is because it alters the results of the Bankruptcy Means Test.
Here’s how it works:
The Bankruptcy Means Test determines whether or not you qualify for Chapter 7 debt elimination. The test looks at your adjusted income and deductions and if you’re married, the adjusted income of your spouse. Combined incomes are obviously higher than an individual income, and in some cases, this can disqualify a filer from Chapter 7.
If you’d like to learn more about the Means Test, check out this article by Nolo.com.
How the Marital Adjustment Deduction Helps
For those who are disqualified from Chapter 7 because of a spouse’s income, it might be possible to utilize the Marital Adjustment Deduction. This allows the non-filing spouse to utilize deductions as part of the Means Test and therefore, reduce his or her adjusted income.
Here’s an example:
If you are filing for bankruptcy and your spouse has monthly child support expenses, these payments can be used to reduce your spouse’s adjusted income amount because they are personal and not household expenses.
Other personal expenses that might qualify for use include:
• Student loan payments
• Attorney’s fees
• Alimony payment
• Investment accounts
• Mortgage payments for homes solely owned by your spouse
• Travel expenses for business purposes
• Business expenses
• Credit card payments for cards in your spouse’s name only
• Gym memberships never used by you
• Cell phone bills, internet charges, or subscription charges used only by your spouse
• Medical expenses incurred by your spouse
• Vacations you did not attend
Putting the Marital Adjustment Deduction to use can be complicated and any attempt you make to do so will be carefully reviewed by your bankruptcy trustee. This is why it is so important to have the assistance of an experienced bankruptcy attorney to help you file.
Keep in mind that misreporting your income and expenses on your Means Test or at any point in your bankruptcy is one of the fastest ways to have your claim denied. This is the last thing you want if you are filing for bankruptcy.
If you would like more information about the Marital Adjustment Deduction or you have questions about bankruptcy in general, contact R. Flay Cabiness, II, P.C. at (912) 554-3774 (Brunswick, GA); (912) 375-5620 (Hazlehurst, GA) or; (912)-554-3756 (Jesup, GA).
