I have debts and little income. My spouse has a good job. Should I file for bankruptcy?

Filing for bankruptcy without your spouse might be a good option if you have lots of debts and your spouse has a good income.

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Question

I have debts from a business. I don't have much income, but my spouse has a good job. Should I file for bankruptcy?

Answer

If creditors can collect from jointly owned assets, bankruptcy might be a good way to protect those assets. However, your spouse's income will be included in various bankruptcy calculations, which might make it harder to qualify for Chapter 7 bankruptcy and might affect how much you must pay to unsecured creditors in Chapter 13 bankruptcy.

(To learn more about using bankruptcy for business debts, see our Bankruptcy for Small Business Owners area.)

Can Creditors Collect From Your Spouse?

Depending on the laws of your state, your spouse may not be liable for the debts that you have incurred individually. However, even if your spouse is not obligated on those debts, a potential judgment creditor may be able to collect from both you and your spouse. For instance, if the two of you jointly own assets -- such as a bank account into which she deposits that income -- then a judgment creditor may be able attach that account. For more information, read Bank Levies on Joint Accounts (Spouse).

If you and your spouse are faced with this situation, filing bankruptcy may be a good option for you, assuming you meet the eligibility requirements. You spouse does not have to file bankruptcy with you, and probably shouldn't, especially if she has little or no debts of her own.

Your Must Include Your Spouse's Income in Various Bankruptcy Calculations

However, because your wife has a good job, her income may affect your eligibility to file for Chapter 7 and the calculation of your disposable income in Chapter 13. This is because if you share the same household, her income is included in various bankruptcy calculations, even if you file alone.

The Marital Adjustment Deduction in Bankruptcy

Although you must normally include your nonfiling spouse's income in the Chapter 7 means test or in the calculation of disposable income on Form 22C for a Chapter 13 bankruptcy, you may be able to make certain deductions that might help you pass the means test or lower your disposable income. This is called the marital adjustment deduction. Through it, you can deduct certain of your spouse's personal expenses that she pays with her own separate income, and exclude that part of her income that is not used to support your household.

For more information on how this works, read The Marital Adjustment Deduction on the Means Test.

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