Category Archives: Joint-Filing

If I Am Filing for Bankruptcy but My Spouse Is Not, Do I Need to Provide His or Her Income Information?

Posted on December 4, 2009 | 1 Comment

It is perfectly feasible for a married individual to file Chapter 7 or Chapter 13 bankruptcy without his or her spouse doing the same thing. There are many reasons why one married partner might prefer not to file although the other partner is, such as the desire to maintain one individual’s credit rating or a lack of jointly titled personal or real property between the married couple that would be affected by a bankruptcy filing.

Regardless of the situation, however, certain information must be provided by both partners, even if only one of them is actually filing. The requirements for this will vary from area to area, but, in the Eastern District of Michigan, where I practice, the income and employment information for a non-filing spouse is required in a couple of different ways.

First, unless the married partners are legally separated and are maintaining completely separated households, both individuals’ actual, earned gross income is required for each of the 6 months prior to the month in which the bankruptcy petition is being filed for purposes of the Means Test. This will not vary by geographic area as it is required by the Federal Bankrtupcy Code. The Means Test is a mathematical formula that computes an average household monthly income for that 6-month period and determines whether the filer is above or below the median income for their state. If they are above the median, there is a presumption of fraud that must be rebutted for the petition to avoid being dismissed. If they are below the median, the petition should succeed. What may vary is the documentation required to prove this income received: in the Eastern District of Michigan, both partners must provide 6 months’ worth of actual pay-advices (pay-stubs) or other documentary proof of income.

Next, what may further vary from area to area is the extent to which the non-spouse’s income is required for the computation of the average household income and expenditures captured on Schedules I and J of the Bankruptcy Petition. Schedule I lists the gross income, withholdings, and, finally, net income for each wage-earning partner in an average month. Schedule J lists the entire household’s average monthly expenditures in various specific areas, such as rent or mortgage payment. The court-appointed trustees who oversee each bankruptcy petition in the Eastern District of Michigan with an eye toward liquidating unexempt assets for the benefit of creditors whose debts will be discharged by the bankruptcy want to see both income streams reflected separately in Schedule I and the household expenses listed in aggregate on Schedule J.

Many of my propsective clients who are married but wishing to file alone, without their spouses, ask me why they must provide this information. Frequently, they are not necessarily on the best of terms with their spouses and are sometimes working to establish a financial jumping-off point for a full separation or divorce from their spouse. It is not always comfortable for them to approach the spouse to obtain this information. Nevertheless, it is required, and those who are in such a position should be aware of this requirement in advance.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

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Posted in Bankruptcy, Chapter 13, Chapter 7, Income, Joint-Filing, Means Test

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What Happens to My Tax-Return if I File Bankruptcy?

Posted on February 2, 2009 | 1 Comment

It’s that time of the year again, and one of the most often overlooked aspects of a prospective bankruptcy filer’s financial picture is the tax return that is expected but not yet received. It is a common misperception that, when you file for bankruptcy, the bankruptcy trustee and court are concerned only the past and the present state of your financial affairs. In fact, in many ways, they are just as concerned with future alterations to your finances.

An annual tax-return is often the largest unscheduled influx of cash that a consumer receives all year long, so it is of particular interest to trustees. From the end of a year, around late November to December, through March or April of the subsequent year, the possibility that a debtor filing for bankruptcy may receive a large check from the government is something that all parties need to keep in mind. For those of you considering filing for bankruptcy, especially now, as we have just passed employers’ deadline to issue W2 forms, it is important to include the amount of money you expect to receive in your tax-return in the disclosures you make to the bankruptcy attorney preparing your petition.

Remember to include your expected tax refund in your discussions with your attorney is especially important because, often, there may be steps the attorney can take to prevent the inclusion of the full refund in the bankruptcy estate which is overseen by the bankruptcy trustee. For example, if the refund is produced by excessive tax withholding throughout the tax year, the refund may be prorated over the course of the year with only the pre-petition portion being included in the estate. Issues also arise with regard to the tax refund in joint bankruptcy petitions (petitions for bankruptcy from a married couple). Certain tax credits may also be treated differently than others in the petition. The timing of the petition’s filing may also determine whether the refund is included in the estate at all, furthermore.

In short, as with all aspects of bankruptcy, the treatment of an expected tax refund is a complicated matter and should be discussed with a bankruptcy attorney. Many people rely on that tax return to get a jump on the new year, and losing it to a bankruptcy trustee due to an ill-time petition filing or other misstep is a major blow. The possibility is, however, a needless risk. Good planning with a bankruptcy attorney and, most importantly, full disclosure of your entire financial picture, including your future financial picture, will easily mitigate such risks.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

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Posted in Bankruptcy, Bankruptcy Planning, Chapter 13, Chapter 7, Joint-Filing, Michigan, Tax Returns and Bankruptcy

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Am I Eligible for a Chapter 13 Bankruptcy?

Posted on January 23, 2009 | 3 Comments

I receive many calls from potential clients who say, straight off, that they want to file a Chapter 13 bankruptcy. Often, as it turns out, these folks are either not actually eligible for Chapter 13 under the specific requirements of the Bankruptcy Code or it is simply not in their best interest. As the question of whether it is the best tool in bankruptcy for a consumer to make a realistic fresh start, that is a very situation-specific discussion, so I will discuss only the question of basic eligibility here.

The threshold criteria for Chapter 13 eligibility are fairly simple.

First, you have to meet the definition of an eligible debtor as described in Section 109(e) of the US Bankruptcy Code. To be an “eligible debtor,” you must:

  • Be an individual (i.e., not a business) or an individual and spouse
  • With regular income
  • Owing less than $336,900 (as of this writing) in debt that is non-contingent, liquidated, and unsecured
  • Owing less $1,010,650 (as of this writing) in debt that is non-contingent, liquidated, and secured 

“Non-contingent” debt is debt that is not dependent upon some future event happening in order to exist. This future even may never happen, so the debt cannot be realistically calculated at the present time. “Liquidated” debt is debt that is of an agreed-upon and fixed amount. A legal claim that has not been fully adjudicated and awarded is not liquidated, for example. “Unsecured” debt is debt such as credit-card debt that is not guaranteed by the debtor with collateral or other property, while “secured” debt is debt, such as a car-loan or home mortgage, that is guaranteed by collateral or property (usually the item in question itself).

The threshold for qualifying as having “regular income” is fairly low. In the Section 101(30) of the Bankruptcy Code, a peson with “regular income” is described as having “… income sufficiently stable and regular to enable [that person] to make payments under a plan under Chapter 13.” In other words, you have to be able to guarantee that you can fulfill the terms of the payment plan that is submitted with your Chapter 13 bankruptcy petition. The Code’s definition is intended to include Social Security, welfare, pension, and alimony recipients, among other non-wage-earning debtors. Simply, you must prove that you have an income of some sort and that it is regular enough to support a 3- or 5-year plan.

As to the debt limitations, there are a few more complications here. First, you must determine whether each individual debt you have is “secured” or “unsecured.” In most cases, this is simple enough, but it becomes complicated in such cases as when a secured debt is under-secured to the extent that it may actually be classified as unsecured or when a debt held by the debtor wishing to file bankruptcy is actually secured through property held or owned by someone else. Each debt must also, as indicated above, be individually determined to be either liquidated or un-liquidated and contingent or non-contingent. Each of these determinations carries its own questions that are best explored with the help of an attorney.

These are the basic points of eligibility for a Chapter 13 bankruptcy.  However, any previous bankruptcies you may have filed may also impact your eligibility. If you have never filed bankruptcy before, there is no problem, naturally. But, if you have filed for and received a Chapter 7 bankruptcy discharge within 4 years before you would file the new Chapter 13 petition, you are not eligible. Likewise, if you have filed for and received a Chapter 13 discharge within 2 years of the date you would file the new Chapter 13 petition, you are not eligible.

If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or john@hillalaw.com to schedule a free, initial consultation.

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Posted in Bankruptcy, Bankruptcy Basics, Bankruptcy Planning, Chapter 13, Home Mortgages and Bankruptcy, Joint-Filing

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