IF MY SPOUSE MAKES A LOT OF MONEY, WILL THAT PREVENT ME FROM FILING BANKRUPTCY?
The answer to this question is that it might. In order to qualify for Chapter 7 Bankruptcy you must pass what is called the “Means Test” or show special circumstance, which can be rather difficult to do.
Under the Means Test, your gross income is compared to the median income in your state of residence for a household of your size. If that income is below the state median, you pass, meaning you have jumped the first hurdle. If your income is above that figure, you may still qualify, but it gets more complicated. You have to have enough allowable expenses to reduce your disposable income down to practically nothing. We’ll address that in another blog. Unfortunately, if you are married, your spouse’s income is counted as well, regardless of whether she is going to be filing bankruptcy. So although your income may be plenty low enough, the addition of you spouse’s income may throw you over the top and disqualify you from filing Chapter 7 Bankruptcy.
The Means Test does, however, have what they call a marital adjustment. This allows you to adjust out, i.e. not count as income any income of the non-filing spouse that is not contributed to the household. This would include any obligations of the non-filing spouse that are solely his or her obligation, such as child support or other debts in his or her name only. It would also include payroll deductions for health insurance, taxes and retirement contributions.
So you see, sometimes a spouse’s income can change the result of the bankruptcy and sometimes not. It just depends.