Married couples struggling with mounting debt may not know which bankruptcy chapter is right for their financial situation. It’s also hard to decide if it’s a better option for only one spouse to file a bankruptcy petition.
If you are considering Chapter 13 bankruptcy, here are some things married couples should know:
Rules for Filing Chapter 13 When Married
Although Chapter 7 is the quickest and easiest solution, couples who do not qualify can still find debt relief through Chapter 13. A married individual has the right to file for Chapter 13 bankruptcy without their spouse, but if you share a household, your spouse’s income must be included in the petition. Those who live in separate households do not need to include their spouse's income — which is often the scenario in a separation case.
The Marital Adjustment Deduction
Also known as a wage earner’s plan, Chapter 13 focuses on repaying your debts through a repayment plan, allowing you to pay back your debts over a three to five year period. If you are going to file for Chapter 13 without your spouse, the marital adjustment deduction can be implemented to reduce the amount you must pay back to unsecured creditors. This allows you to deduct your spouse’s personal expenses from their income on the bankruptcy petition. The following are the most common, non-filing spouse expenses that can qualify for the marital adjustment deduction:
- Payroll deductions - (tax, retirement, insurance and 401(K) loans)
- Creditor payments
- Car payments
- Child support and alimony
- Clothing expenses
- Entertainment expenses
- Mortgages and real property expenses held solely by the non-filing spouse
Can Creditors Still Go After My Spouse After Filing Chapter 13?
Filing for Chapter 13 bankruptcy can protect your spouse from creditors with the codebtor stay. The codebtor stay provision does not allow creditors to seek out your spouse or any other co-signers in your bankruptcy. While this can be extremely beneficial for married couples, it's important to remember that the bankruptcy process is complicated and in certain circumstances, creditors can ask the court to have the codebtor stay removed.
If you and your spouse are considering bankruptcy as a debt-relief option, our skilled team of bankruptcy attorneys can help guide you through the process. For more information or to discuss the best bankruptcy solution for you, contact Wadhwani & Shanfeld today at (800) 996-9932.