What is the Marital Adjustment Deduction in Bankruptcy?

Are you currently considering a personal bankruptcy filing under Chapter 7? As you may already know, this is a liquidation bankruptcy that will require the liquidation of your non-exempt assets, and in order to be eligible, you will need to pass something known as the “means test.” The means test is designed to show that your income and assets are sufficiently low such that it would not be an abuse of the bankruptcy system for you to have your debts discharged in exchange, essentially, for the liquidation of your non-exempt assets.

If you are unmarried, only your own income and assets will be relevant to the means test. However, if you are married — and to be clear, even if your spouse is not filing for bankruptcy, too — your spouse’s income will be relevant to your case. Can you still pass the means test with your spouse’s income included? You may be able to pass the test and to be eligible for Chapter 7 bankruptcy due to the marital adjustment deduction.

Why the Marital Adjustment Deduction is Important

Passing the means test is essential for filing for Chapter 7 bankruptcy as an individual — you must pass the means test to qualify for this type of bankruptcy. If you have a spouse who is not filing for bankruptcy and earns money, their income could result in your household having too much income for you to qualify for Chapter 7 bankruptcy. Here is where the marital adjustment deduction comes in.

In short, the marital adjustment deduction allows you to deduct portions of your non-filing spouse’s income from the total amount of your household income for expenses. Accordingly, the total amount of your non-filing spouse’s income that gets included in the means test calculation is reduced.

How the Marital Adjustment Deduction Works

The marital adjustment deduction allows you to deduct your spouse’s income used to pay only for their own personal expenses — meaning income that goes toward non-household (and instead toward personal only) expenses. Some examples of these deductions can include but are not limited to:

• Your non-filing spouse’s personal student loan payments;
• Child support or alimony your spouse pays from a previous relationship;
• Car payment for a vehicle loan in your spouse’s name;
• Personal loan payments for a loan only in your spouse’s name; and
• Your non-filing spouse’s payroll deductions, such as for insurance premiums, union dues, or retirement contributions.

Contact Our West Palm Beach Bankruptcy Attorneys Today for Assistance Filing for Chapter 7 Bankruptcy as an Individual in Florida 

If you have been considering Chapter 7 bankruptcy and have finally made the decision to move forward with your filing, it can be confusing and frustrating to realize that your spouse’s income is likely to be relevant in determining whether you can pass the means test (and thus whether you can actually file for Chapter 7 bankruptcy in Florida). Fortunately, as we discussed above, Florida does permit you to deduct certain expenses connected to your non-filing spouse in order to show that your household income may be low enough for you to qualify for Chapter 7 bankruptcy. To find out more, you should reach out to an experienced West Palm Beach bankruptcy lawyer at Kelley Kaplan Delaney & Eller, PLLC. We can discuss the means test with you today, and eligibility for bankruptcy based on your current financial circumstances.

Source:

law.cornell.edu/uscode/text/11