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 you'd like to preserve your spouse's credit.

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 the bankruptcy, 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.

(You can learn more by reading Are You Personally Liable for Business Debts?)

Can Creditors Collect From Your Spouse?

Depending on the laws of your state, your spouse might not be liable for the debts that you’ve incurred individually. However, even if your spouse isn’t obligated, a potential judgment creditor might 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 she deposits income into—then a judgment creditor might be able levy (withdraw funds from) the account. For more information, read Bank Levies on Joint Accounts (Spouse).

Filing for bankruptcy might be a good option for you, assuming you meet the eligibility requirements. You spouse doesn’t have to file bankruptcy with you, and probably shouldn't, especially if she has little or no debts of her own.

Including Your Spouse’s Income in Bankruptcy

If you want to take care of the debt by filing for bankruptcy, you’ll have to include your wife’s income if you share the same household—even if you file alone. Since your wife’s income is appreciable, it might affect your eligibility to receive a discharge in a Chapter 7 bankruptcy.

But there’s an exception. You don’t need to meet income qualifications if the majority of your debts are business debt. You can learn more by reading about the Chapter 7 means test.

Your wife’s income will also affect the amount you’d pay in a Chapter 13 bankruptcy. You can learn more by reading Your Obligations Under a Chapter 13 Bankruptcy Plan.

How to Reduce a Nonfiling Spouse’s Income in Bankruptcy

Although you must include your nonfiling spouse's income, you might be able to take deductions and pass the means test or lower your disposable income. The marital adjustment deduction allows you to deduct some of your spouse's personal expenses if they’re paid with her own separate income. You can exclude that portion because it isn’t 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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