A question posed by numerous married new clients is “should my spouse file as well or should I file alone, we want to save my spouses credit?”
The answer is dependant on several factors:
1. What debt does the Spouse have
2. What assets does the Spouse have in their name alone?
One has to remember that to file for bankruptcy, a debtor must file a Statement of the Current Monthly Income. This is because 11 U.S.C.§707(b)(6) says:
Only the judge or United States trustee (or bankruptcy administrator, if any) may file a motion under section 707(b) , if the current monthly income of the debtor, or in a joint case, the debtor and the debtor’s spouse, as of the date of the order for relief, when multiplied by 12, is equal to or less than–
(A) In the case of a debtor in a household of 1 person, the median family income of the applicable State for 1 earner.
(B) In the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals.
(C) In the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $700 1 per month for each individual in excess of 4.
Currently the Median Family Incomes in New Jersey are
- FAMILY SIZE
- STATE 1 EARNER 2 PEOPLE 3 PEOPLE 4 PEOPLE *
New Jersey $66,719 $80,302 $101,163 $122,474
* Add $8,400 for each individual in excess of 4.
This means if the Debtor and Spouse are both Wage Earners, if the Gross Income is over $80,302, then the filer may be required to file a Chapter 13 as opposed to a Chapter 7. It does not matter if the Spouse is filing or not, their Income is considered. There are exceptions and exemptions that can be used to reduce the amount of Income of the Non-Filing Spouse, but it MUST be included. This also means that if the Debtor and the Non-Filing Spouse have a child, then the Median Income for determining if a Chapter 7 is possible goes up to $101,163 Gross Income for the Household.
Household means the amount of people that live together as a family unit.
One of the biggest advantages to both spouses filing, besides being rid of the debt accumulated by both spouses, is the amount of “exemption” money that can be used. The figures and exemptions can be found at 11 USC 522(d). According to that section,
The following property may be exempted under subsection (b)(2) of this section:
(1)The debtor’s aggregate interest, not to exceed $23,675 in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor.
(2)The debtor’s interest, not to exceed $3775 in value, in one motor vehicle.
These figures double if the case is filed as “joint case” meaning both spouses have filed. This is important because having the ability to exempt out $47,350 in equity in your house may mean the difference between filing for Chapter 7 (where you are in Bankruptcy for 7 months) and Chapter 13 (where you are in Bankruptcy for 36-60 months)
The Filing Fee in the Bankruptcy Court is the same, and most attorney do not charge much more for a joint case as opposed to a single debtor case. The benefits may greatly outweigh the potential effect on the credit report.
For more information about this and other issues of bankruptcy, call the Law Office of Stuart M. Nachbar, P.C., located at 354 Eisenhower Parkway, Suite 2025, Livingston, New Jersey 07039, at (973) 567-0954 or email us at Stuart@snanj.com