Marriage and Bankruptcy

BankruptcyGetting married can affect both the cost of filing bankruptcy and eligibility for relief.  In order to determine eligibility for relief under Chapter 7 of the Bankruptcy Code or the plan payment amount in a Chapter 13 case, debtors must file a means test.  This test determines disposable income.  In Chapter 7 cases disposable income is used to determine which bankruptcy chapter a debtor can file under.  Too much disposable income can make a debtor ineligible for relief under Chapter 7.  Disposable income is calculated by averaging household income from all sources, excluding funds received from the Social Security Administration, and then subtracting standard IRS deductions.

Take note that disposable income is based upon average household income.  Household income means any funds earned by the filer or their spouse, even when the spouse is not filing.  For example, consider a man name John.  John has an annual income of $30,000 and $100,000 in credit card debt.  Based upon his income he is most likely eligible for a discharge under Chapter 7 of the Bankruptcy Code.  John gets married to a woman named Beth who has $80,000 in income and $2,000 in credit card debt.  Betty doesn’t need to file bankruptcy because she has very little debt and earns sufficient income to pay off her creditors.  John wants to file Chapter 7 bankruptcy, but now that he has married Beth he no longer qualifies.  His household income increased from $30,000 annually to $110,000 after getting married.

Similarly, getting married can affect how much it costs to file Chapter 13 bankruptcy.  Unsecured creditors are paid in these types of bankruptcy cases based upon how much disposable income is available to the debtor.  Consider John and Beth again.  If John was to file a Chapter 13 bankruptcy case before getting married, then his payment would be very small and his bankruptcy case would be over in three years.  However, after getting married his disposable income is much higher and he would most likely have to pay off all of his unsecured debt over five years.  The bottom line is that if you have debt and are planning on getting married, then it may be a good idea to file bankruptcy first.