Will I pass the means test in bankruptcy but I have a spouse who makes good money but is not filing?

Good news!  That is okay!  Generally a non-filing spouse’s income is included in the bankruptcy means test as household income even if the spouse is not filing bankruptcy unless the spouses live apart.  But if your marriage is a recent marriage of less than six months then not all of the non-filing spouse’s income will be included in the household income calculation anyway.

If it is a marriage longer than six months then there is something called the marital adjustment which will allow you to reduce the amount of your spouse’s income that will appear on the means test.  The marital adjustment appears on line 17 of the means test form 22A.  There are several lines there but you can add an attachment as I did recently in a case.   This marital deduction allows you to deduct from your spouse’s income all of your spouse’s expenses that your spouse pays separately.

The first one is the deductions that come out of the non-filing spouse’s paycheck.  The non-filing spouse will have taxes, insurance, union dues and even a retirement deductions taken out of his or her paycheck.  The income for the spouse goes into the means test in the gross amount but the deductions are taken out here.  The retirement can be included here where it would not be for the filing spouse unless the filing spouse had a mandatory retirement.

Remember that this spouse is not filing bankruptcy and can spend money and take deductions as needed.  The non-filing spouse is not attempting to discharge their debts so the trustee has much less control over what they take on deductions than he or she would over a party that is filing for bankruptcy. But still the Trustee can challenge these marital deductions so it is good to have a bankruptcy attorney to analyze which ones can be justified.

The non-filing spouse can also take his or her credit card payments as marital deductions.  These payments will have to be made after the bankruptcy as they are not being discharged and thus they can be taken here.  If the non-filing spouse has a car of their own then they can take those car expenses there too if they have not already been taken in the car section of the means test.  The same would go for a separate cell phone.

There are other expenses too like separate student loan payments that the non-filing spouse can take.  Also if they have traveling or food expenses for themselves or if they pay child support for a child from a previous marriage then they can take those expenses.  Anything that is truly an expense just for them and was not paid on a regular basis for the household expenses for the debtor or the debtor’s dependants.

This gives you a lot of leeway for expenses to be included here that you or your attorney can come up with that meet this criteria.  Most people do have these expenses that are separate and distinct from the expenses that are contributed to the household.  This is because most people, even if married, these days have separate and distinct lives.  They may have many debts and obligations and expenses left over from before the marriage or just expenses that are truly just for them.

So don’t despair if you don’t pass the means test with your spouse’s income.  The marital deduction sections may make bankruptcy possible.  If it seems too complicated then contact a bankruptcy attorney who will help you decide which expenses can be taken on the marital deduction section of the bankruptcy means test.

I am a San Diego bankruptcy attorney.  For further questions please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis!

For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.

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Is the economy improving? Will I be “means tested” out of bankruptcy if I get a good paying job?

I don’t know if the economy is improving but if you are going to be starting a new job soon it could mean that it’s a good time to file bankruptcy.  If you have been unemployed and you have a lot of debts that you wish to discharge in bankruptcy then it might be good for you to file before you get a new job.  If the economy is actually improving then so will job prospects.  If you get a new job then this will possibly impact your ability to file.  If you make too much money you may be “means tested” out of bankruptcy.  There are limits to how much income you can make and still file a chapter 7 bankruptcy.

The means test was added in 2005 to force people into a chapter 13 so the creditors could get some sort of payments on their debts.  The law was lobbied for and written by the credit card companies and big banks (same thing).

At the time of this article in San Diego county income limits range from just over $47,000 per year for an individual to $77,596 for a family of four.  (You add $7,500 per year for each family member after 4 people).  If you make more than these amounts that are allowed for your family size then you would go into the means test.  When you are in the means test then all of the deductions for mortgages, cars, healthcare, charity, and taxes are subtracted from your income to see if you pass.  If you do not pass the means test then you must do a chapter 13 bankruptcy as you are “means tested” out of a chapter 7.

It is far better though to not go into the means test at all.  It is better to fall below the means test cut-off line and not take the test at all.  If you file while you are still unemployed or soon after you job starts then you will have a higher chance of coming in below the means test limits.

If your income is going to go up significantly then it is a good time to file sooner rather than later.  The means test looks back six months so if you just started a job then you would still be okay but don’t delay the filing and risk not qualifying for a chapter 7.   A chapter 7 will allow you to eliminate all of your dischargeable debts and then get a fresh start as you move on with your life and your new job.

Remember that most people can keep most of their assets in a bankruptcy and most people can eliminate all of their dischargeable debts.  Some debts are not dischargeable but consult me or another bankruptcy attorney if you are wondering which debts are dischargeable.  Also you can file alone and your spouse does not have to file with you.  Bankruptcy will remain on your credit report for up to ten years but with the proper re-building most people can get their score up significantly after two or three years.

So bankruptcy is not the end but a new beginning!  It is a fresh start that many need!  It might be a good time to file now though if you are going to start a new job so you can start a new life debt free!

I am San Diego bankruptcy attorney.  Please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  Call now for free credit report and analysis!  For a free e-book on “13 things to do to prepare for your bankruptcy filing” please e-mail me at farquharesq@yahoo.com.