Marriage can offer many financial benefits, including tax advantages, two incomes, and someone to share expenses. Unfortunately, getting married can cost you a great deal if you need to file bankruptcy. Getting married can make a person ineligible for Chapter 7 bankruptcy and increase their payments in Chapter 13 bankruptcy. I’m going to use an example to explain why this is the case.
Jan is single with no children. She earns $30,000 a year, and has $25,000 in credit card debt. Based upon her income, she is eligible to file Chapter 7 bankruptcy. Before filing Jan marries Kevin. Kevin earns $60,000 a year and has no debt. After marrying Kevin, Jan consults a bankruptcy attorney to file a Chapter 7 bankruptcy case. She intends to file by herself, since Kevin has no debt. Unfortunately, The Bankruptcy Code requires that the Debtor’s household income be considered when determining eligibility to file Chapter 7 bankruptcy. Jane may have qualified for Chapter 7 bankruptcy when she was single, but since Jan and Kevin have a combined income of $90,000 a year, Jan no longer qualifies for Chapter 7 bankruptcy.
Jan and Kevin have limited options now. Even with a household income of $90,000 a year, it is going to be difficult to pay off $25,000 in high interest credit cards. Jan consults a bankruptcy attorney to learn about Chapter 13 bankruptcy. In Chapter 13 bankruptcy, a debtor makes a payment each month to a Trustee, who then takes that money and disburses it to the creditors. The payment amount is dependent upon the household income of the Debtor. If Jan files Chapter 13 bankruptcy individually her payment amount is going to be calculated using the household income of $90,000 a year. That means that Kevin, who did not incur the debt, and who isn’t filing bankruptcy, is going to be the one repaying Jan’s creditors in her bankruptcy case.
There was an easy way to prevent this situation from happening. Jan should have filed Chapter 7 bankruptcy before she got married. It is likely that she would have received a discharge in about four months after filing and been debt free when she walked down the aisle. If you have debt, and are considering getting married, call your bankruptcy attorney before you tie the knot.
