Means Test Marital Adjustment

25 Dec Means Test Marital Adjustment

Married people are not required to file bankruptcy together. For various reasons, often just one spouse files. When this happens the question arises: what impact does the non-filing spouse’s income have on the bankruptcy. One such effect, which I will write about here, involves the means test.

To determine disposable income, one must calculation current monthly income (CMI) by adding and averaging a debtor’s income for the six months proceeding the bankruptcy. However, a debtor’s non-filing spouse’s income is included only to the extent to which it is contributed “on a regular basis for the household expenses of the debtor or the debtor’s dependents.” 11 USC 101. Consequently, income that goes towards the sole benefit of the non-debtor spouse or some other non-family beneficiary isn’t included in the CMI calculation. This can have dramatic effect on a case. It can push someone below the median income (reducing the Chapter 13 commitment period or making a Chapter 7 case viable), and, in general, serves to reduce disposable income. However, the types of expenditures that can be permissibly withheld from CMI is yet another controversy in current bankruptcy law.

It is uncontested that a non-debtor spouse’s payroll tax deductions can be part of the marital adjustment, but things like personal clothing purchases, cigarettes, and entertainment have been the subject of dispute. However, as one court put it:

I have not found a provision in the Bankruptcy Code which mandates a non-filing spouse to live modestly or to devote his or her income to the repayment of the filing spouse’s debts. If the legislature is unhappy with the effect of the statute, it is free to amend it within the limits of the Constitution.

In re Baldino, 369 B.R. 858, 862 (Bkrtcy.M.D.Pa. 2007).

The marital adjustment seems to be underutilized by bankruptcy attorneys. It makes sense to really consider where income earned by a non-debtor spouse goes to whose benefit it accrues.

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