Married debtors who are filing for bankruptcy without their spouse can use the marital adjustment deduction to qualify for Chapter 7 or reduce the amount they pay to unsecured creditors in Chapter 13 bankruptcy. Below, we discuss how the marital adjustment deduction works and the types of allowable deductions it includes.
If you are married and share a household with your spouse, you have to disclose his or her income on your means test even if you are filing for bankruptcy alone. The means test uses your combined household income when determining whether you qualify for Chapter 7 bankruptcy or how much you should be paying your unsecured creditors in a Chapter 13. (For more details on how the means test works, see our Chapter 7 Means Test area.) If your nonfiling spouse has high income, you may not qualify for Chapter 7 or be forced to pay back a large amount of your unsecured debts through your Chapter 13 plan.
However, even if your nonfiling spouse makes a lot of money, some of that income may go towards paying his or her personal expenses and obligations that are separate from household expenses. When completing the means test, the marital adjustment deduction allows you to deduct your nonfiling spouse’s separate personal expenses that do not benefit the household. As a result, the marital adjustment deduction reduces your household income on the means test. In many cases, this may allow you to qualify for Chapter 7 or pay significantly less to your unsecured creditors in your Chapter 13.
(Learn more about the marital adjustment deduction.)
Depending on where you live, courts differ on what expenses qualify for the marital adjustment deduction. Below, we discuss some of your nonfiling spouse’s expenses you may be able to deduct.
Payroll deductions. These include your nonfiling spouse’s taxes, insurance, union dues, retirement contributions, and other various payroll deductions.
401(k) loans. Any payments your nonfiling spouse is making on his or her 401(k) loans normally qualify for the marital adjustment deduction.
Payments on separate individual debts. If your nonfiling spouse has credit card or other types of debt in his or her name alone, the payments on these separate debts can usually be deducted. These also include payments on student loans.
Car expenses. These can include expenses such as your nonfiling spouse’s car payment, insurance, gas, and maintenance for his or her vehicle.
Domestic support obligations. These include your nonfiling spouse’s obligations such as alimony or child support.
Attorneys' fees. If your nonfiling spouse is still paying back attorneys' fees, these payments can generally be deducted.
Nonfiling spouse’s real property expenses. If your nonfiling spouse owns real estate in his or her name alone, you may be able to deduct his or her mortgage payments, insurance, and other related expenses.
Cell phone expenses. You can usually deduct your nonfiling spouse’s cell phone payments and expenses.
Recreation and entertainment expenses. These can include gym memberships, hobbies, and expenses for other recreational activities. Courts disagree on what types of recreation expenses can be deducted as a marital adjustment. However, some courts even allow a deduction for your nonfiling spouse’s bad habits such as cigarettes.
You can learn more about the Chapter 7 means test, find a means test calculator, and check other Chapter 7 eligibility criteria, in our Chapter 7 Means Test area.