Must a Husband and Wife File a Joint Bankruptcy. Part II

In a prior post we pointed out the while a husband and wife may file a joint Chapter 7 Bankruptcy or a joint Chapter 13 Bankruptcy, the United States Bankruptcy Code also allows either spouse to file an individual bankruptcy. However, in many cases it would make no sense for a married couple to file an individual bankruptcy, because either the debts are in joint names or each party has substantial debts in his or her own name, and by filing a joint bankruptcy both parties can receive a discharge from their debts.

One reason a couple may not want to file a joint bankruptcy though occurs when the parties have a high enough income that the bankruptcy law will require them to file a Chapter 13 bankruptcy, but they are not that much past the limit. In a Chapter 13 bankruptcy the debtor is required to make monthly payments over a plan period which usually lasts for five years. How large the payments will be is usually based on how much disposable income the household has available (the formula contained in the Bankruptcy Code known as the "means test"), and in the majority of cases the total plan payments add up to substantially less than the amount of debt that the Bankruptcy Court will discharge.

In figuring the amount of income that is available the law allows certain deductions for household expenses, and one of the allowed expenses is the debt that the nonfiling spouse will have to pay off over the next five years. In other words in many cases, if one spouse stays out of the bankruptcy the plan payments will go down by the debts payments that spouse has to make over the next sixty months. In some cases the total household debt payments will stay the same either way, and the spouse who does not file will avoid having a bankruptcy on their credit report. Or after allowing the deduction for non discharged household debts, the spouse filing bankruptcy will end up qualifying to do a Chapter 7 bankruptcy rather than a Chapter 13 bankruptcy.

Of course no one will know whether either of these advantages will apply in their case until their bankruptcy lawyer performs a rather complication to determine how the means test will work in their particular case. The bankruptcy lawyer is required to compute the means test in every individual bankruptcy though, and he or she should be able to advise the debtors before they file whether or not a husband and wife is better off filing a joint bankruptcy