When considering filing for Chapter 7 bankruptcy in Kentucky, a debtor who is married needs to take into account how one’s marriage will affect his or her ability to file. For example, according to the U.S. Dept. of Justice, the state median family income for filing a Chapter 7 bankruptcy in Kentucky is $40,020 for a single person household, while for a two person household, it is $46,815.[1] This is a particularly important factor which must be calculated when filing for bankruptcy. The bankruptcy Means Test is a formula used to determine whether your income is low enough for you to file Chapter 7 bankruptcy. High income filers who “fail” the means test may still file Chapter 13 bankruptcy as a way to discharge a portion of their debts, but it usually won’t wipe out their debts altogether.

Is the Debt in the Debtor’s Name or the Spouse’s Name?

The married debtor needs to determine whether the debts are solely in the debtor’s name, or if they are also in the debtor’s spouse’s name as well. Debts that were obtained in both spouses’ names will make each spouse jointly and severally liable for payment of that debt. Therefore, it is often necessary for both spouses to file for bankruptcy in order to avoid liability of the debt.

Conversely, if only one partner in a marriage is responsible for a debt, then generally only that spouse should file for bankruptcy. However, even in circumstances where only one spouse needs to file for bankruptcy, the debtor-spouse is still required to list his or her spouse’s income as part of the household income that is used in the Means Test. See e.g., In re McSparran, 410 B.R. 664 (Bankr. D. Mont. 2009) (unexplained failure to list non-filing spouse’s income was fatal to confirmation). Generally, this makes it more likely that the debtor’s household income will be greater than the allowed median family income, and consequently, make the debtor less likely to be eligible to file Chapter 7 bankruptcy.

Determining Eligibility to File for Chapter 7 Bankruptcy

Other factors used in determining eligibility for Chapter 7 Bankruptcy are known as adjustments. For example, a debtor’s household expenses are taken into consideration as a way to determine the debtor’s actual disposable income, and can have the effect of preserving a debtor’s eligibility to file a Chapter 7 bankruptcy when the debtor’s household income is greater than the allowed median family income. The inclusion of the debtor’s household expenses will usually be factored into the Means Test by a debtor’s bankruptcy attorney, especially when the attorney is attempting to ensure that his or her client is eligible to file Chapter 7. However, one of the most overlooked “tools” available to a married debtor who is otherwise ineligible to file a Chapter 7 due in part to the inclusion of the debtor’s spouse’s income are Marital Adjustments. “The Marital Adjustment is the portion of a non debtor spouse’s income that is not paid on a regular basis to the household expenses of the debtor or debtor’s dependants.” (John P. Gustafson, The Chapter 13 Means Test:Line-by-Line, February 7, 2013).

This means that a debtor can deduct from the non-filing spouse’s income any amount used to pay for personal expenses that are separate from the debtor’s household expenses. These expenses, also known as “marital deduction expenses,” have the effect of reducing the debtor’s spouse’s income used in the Means Test to solely the amount that is used to contribute towards the debtor’s expenses or the debtor’s dependent’s expenses.

Marital Deduction Expenses

Although there is little case from the Kentucky Federal Courts regarding what qualifies as marital deduction expenses, most courts have generally found that the following can be considered marital deduction expenses:

• Alimony Payments
• Student Loan payments made by the non-filing spouse for his or her own student loans
• Car payments for the non-filing spouse’s car
• Credit Card payments for non-filing spouse’s credit cards.
• Etc.

Therefore, although it is clear that there are many different ways in which a debtor could become eligible to file a Chapter 7 bankruptcy, it can be a rather daunting task for someone who is unfamiliar with the bankruptcy laws and requirements.

If you are attempting to make this determination on your own, or know someone else who is, please don’t hesitate to contact Lawrence & Associates. Our attorneys are extremely knowledgeable and dedicated to making sure that you are able to take advantage of all the protections that are afforded to you in a bankruptcy.

Contact Us (859.371.5997) for a Free Consultation

[1] http://www.justice.gov/ust/eo/bapcpa/20130501/bci_data/median_income_table.htm

Immediate Relief For Pressing Financial Problems

Above all, do not ignore your financial problems or lawsuits that creditors bring against you. These issues will not disappear. Your best option is to contact a bankruptcy attorney at the first sign of financial distress. Even if you are facing immediate foreclosure, repossession or wage garnishment, Lawrence & Associates can provide swift legal action to help protect you. Your start to a fresh financial future begins when you contact the bankruptcy law firm of Lawrence & Associates. Our firm helps clients file Chapter 7 bankruptcy and Chapter 13 bankruptcy. When you work with our firm, we will take the time to fully explain your legal options and the bankruptcy process in an understandable way — not with complex legal jargon. We can also provide advice on how to stop creditor harassment, garnishment, foreclosure and repossessions.

Should you take out new debt just before filing bankruptcy? No. No no no no. Please don’t. For those who are looking for a short and easy answer from an attorney, look no further. For those who want to know how taking out new debt right before filing bankruptcy can ruin your chances for a discharge, read on.

Bankruptcies Have to be Filed in Good Faith

Bankruptcies need to be filled in good faith like debt must be taken out with the good faith that you intend to pay it back. Taking out a debt with intent to discharge it in bankruptcy makes both taking out the debt and filing the bankruptcy an exercise in bad faith. The law sets an arbitrary cut off for when a debt is presumed to have been taken out in bad faith. If you take the debt out within 90 days prior to filing a bankruptcy, there is a presumption that the debt will be non-dischargeable. If you charge a de minimus amount to a credit card – say you mistakenly ring up a $7 lunch on your Mastercard – it’s unlikely the creditor will pursue the matter in court. But racking up debts of more than $500 within that 90 days is almost certain to call the creditor’s attorneys into court with you.

Usually If You Take Out Debt Just Before a Bankruptcy, You Can’t Add That Debt to the Bankruptcy

The penalty for taking out debt prior to filing is usually that the debt is non-dischargeable. This means that you can’t get rid of the debt in bankruptcy. The problem is that the entire debt is non-dischargeable, not just the amount you charged within the 90 day period. Let’s assume you have $10,000 on a Discover Card, and you add another $600 to it about a month before you file. If Discover comes to court to enforce the non-dischargeability of the debt, you now have a $10,600 debt that survived the bankruptcy. In cases where the court feels the Debtor’s behavior was especially bad, the court could kick out the entire bankruptcy and prevent the Debtor from filing again.

But Circumstances Matter; Creditors Need to Prove Your Intention of Bad Faith

Not all debts incurred within 90 days prior to filing a bankruptcy fall are necessarily going to be bad faith debts. Circumstances matter, and the creditor has to prove that you intended to act in bad faith. Let’s say you have an American Express card that you regularly pay off at the end of the month. Suddenly you have a heart attack, which gets you a whole lot of medical bills that your insurance won’t pay. You’ve got to file a bankruptcy, and your AmEx is going to get roped in with the medical bills. You’d used the AmEx all the way up to the day of your heart attack, and you need to file the bankruptcy 60 days after the heart attack. Will the AmEx debt be considered bad faith? Absolutely not. A good Kenton County bankruptcy attorney will get both the AmEx bill and the medical bills discharged, and get you a fresh start on life.

You have to give your attorney full disclosure of any debts you’ve taken out prior to filing. Experienced bankruptcy attorneys, like those at Lawrence & Associates can advise you on the best way to handle your debts and the best timing in which to file your bankruptcy.

Contact Us (859.371.5997) for a Free Consultation

—

Providing You With Debt Relief Solutions Through Bankruptcy

Regardless of the reasons that brought you to financial distress, filing for bankruptcy does not make you a bad person. In fact, the government created bankruptcy in order to help people recover from unmanageable financial problems. At Lawrence & Associates, we help our clients understand how bankruptcy laws are made to protect them and will allow for a brighter financial future.

• Chapter 7 Bankruptcy
• Chapter 13 Bankruptcy
• Creditor Harassment
• Property Exemptions
• Garnishment
• Foreclosure
• Repossessions

We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.

Immediate Relief For Pressing Financial Problems

Above all, do not ignore your financial problems or lawsuits that creditors bring against you. These issues will not disappear. Your best option is to contact a bankruptcy attorney at the first sign of financial distress. Even if you are facing immediate foreclosure, repossession or wage garnishment, Lawrence & Associates can provide swift legal action to help protect you. Your start to a fresh financial future begins when you contact the bankruptcy law firm of Lawrence & Associates. Our firm helps clients file Chapter 7 bankruptcy and Chapter 13 bankruptcy. When you work with our firm, we will take the time to fully explain your legal options and the bankruptcy process in an understandable way — not with complex legal jargon. We can also provide advice on how to stop creditor harassment, garnishment, foreclosure and repossessions.