The Marital Adjustment Deduction in Chapter 13 Bankruptcy

If you're married but filing for Chapter 13 bankruptcy without your spouse, the marital adjustment deduction can reduce the amount you pay back to general unsecured creditors. Read on to learn more about the marital adjustment deduction and the role it plays in your Chapter 13 bankruptcy.

What Is the Marital Adjustment Deduction?

Just because you are married doesn't mean you must file a joint bankruptcy. You're allowed to file a bankruptcy without your spouse (an individual bankruptcy). However, if you're sharing a household, you must disclose both your income and your spouse's income in your bankruptcy paperwork even if you file alone. Disclosing both incomes can significantly increase what you have to pay back unsecured creditors (like credit cards and medical bills) through your Chapter 13 repayment plan (discussed below).

Because you're required to include your non-filing spouse's income, the Bankruptcy Code allows you to deduct your spouse's personal and separate expenses from their income when completing your bankruptcy forms. This deduction is referred to as the marital adjustment deduction. Essentially, you can use the marital adjustment deduction to exclude the portion of your spouse's income not regularly contributed to pay your household expenses.

What Expenses Qualify for the Marital Adjustment Deduction?

Bankruptcy courts have differing views as to what can be used as a marital adjustment deduction. The following are some of the most common expenses that might qualify for the marital adjustment deduction:

• the non-filing spouse's payroll deductions, such as taxes, retirement contributions, insurance, and 401(k) loans
• payments to creditors on the non-filing spouse's separate individual debts
• the non-filing spouse's car payments and expenses
• alimony and child support paid by the non-filing spouse
• the non-filing spouse's attorneys' fees
• personal clothing and entertainment expenses of the non-filing spouse, and
• mortgage and other expenses related to real property owned solely by the non-filing spouse.

Note that these expenses are the non-filing spouse's personal expenses, not any contribution the non-filing spouse might make to cover household expenses.

For more details on what you can count as deductions, read about the marital adjustment deduction on the means test.

How Does the Marital Adjustment Deduction Affect Your Chapter 13 Plan?

When you file for Chapter 13 bankruptcy, you're required to disclose your income on Form 22C, "Chapter 13 Statement of Current Monthly Income and Calculation of Commitment Period and Disposable Income." This is the Chapter 13 means test form that calculates your current monthly income ("CMI") and uses it to determine how much you should be paying back to your general unsecured creditors. It also determines whether your bankruptcy should last three or five years.

If your annualized CMI is below your state's median income for a household of the same size, you can be in a three-year bankruptcy and pay little or nothing to general unsecured creditors. If you have an above-median CMI, you must be in a five-year plan, and the amount you have to pay unsecured creditors is determined by your disposable income as calculated by the means test. (To learn more about the plan, how long it must last, and what you must include, see our Chapter 13 Bankruptcy Repayment Plan section.)

The marital adjustment deduction helps you by reducing your total CMI. As a result, if the marital adjustment deduction decreases your CMI enough, you can significantly reduce how much you end up paying unsecured creditors through your Chapter 13 repayment plan. If it decreases your CMI below the state median, it may also reduce your commitment period to three years.

Is the Marital Adjustment Deduction Available?

To find out, consult with experienced bankruptcy counsel. Determining which expenses are appropriate for inclusion in the current monthly income calculation is tricky. The bankruptcy code does a good job of defining what income of the non-filing spouse must be counted toward CMI, but it doesn't give much guidance on what expenses can offset the income.

An experienced bankruptcy attorney in your area will know how the courts treat CMI and the marital adjustment deduction. This kind of lawyer will make sure your Chapter 13 plan accounts for your full household income and your non-filing spouse's allowable expenses.