The Massachusetts Bankruptcy Court just issued an important opinion on the availability of the Chapter 13 marital adjustment to determine the applicable commitment period. The case is In re Abisso, Case No. 12-17888-WCH (Bankr. Mass 2013).
The marital adjustment allows a Chapter 13 debtor to exclude from their plan certain independent expenditures of their non-filing spouse. The thinking is that, if one spouse is not filing and getting debt relief, they should be permitted to spend their own income on their own independent expenses without making this income available to the plan.
However, in the case cited above, the issue arose as to whether these independent expenditures were above-the-line or below-the-line deductions, so to speak. If the independent expenditures could be deducted from a debtor’s total family income before that income was used to determine whether the debtor was above or below median income, then those expenditures could potentially be used to decrease the debtor’s plan period from five to three years. The reason for that is that above-median income debtors must pay into their plan for five years, while a below-median income debtor must only do so for three years.
The court followed the majority of bankruptcy courts in other jurisdictions and held that a debtor in Massachusetts is permitted to take the marital deduction before determining the commitment period. There are strategic uses for this decision for knowledgeable bankruptcy lawyers to employ in representing Chapter 13 debtors in Massachusetts.
Nicholas Ortiz, Boston Bankruptcy Attorney
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Last modified: May 3, 2013