Joint checking account - only 1 spouse filing

[tg16]

Thanks for a great forum, been lurking here for a bit. Husband and wife have joint checking account. Husband want to file 7, husband has his own credit cards, wife has her own. Debit on wife credit cards were used to pay for joint basic living expenses for many years. Wife works part time and makes a minimum amount of money, which is deposited in her separate checking account.
If the time come to stop paying creditors, can husband still pay wife credit card from joint checking account, or would be classified under preference paying?
Thank you

[justbroke]

The husband cannot pay the non-filing wife's credit cards while not paying his own creditors. This may not only be a preference, but also likely what they call a fraudulent conveyance/transfer. In either case, the Trustee would be able to undo those transfers and claw the money back. While this wouldn't hurt the husband in any way, since the Trustee goes after the creditors of the Wife, if will likely hurt the wife. The issue is that the payments would be clawed back and the wife would be left holding the empty bag with some angry creditors.

Think of it this way: whenever you pay one creditor without paying another creditor, that's a preference by definition. Most preferences are avoidable, especially when it's an insider (your spouse).

Welcome to BKForum.

[tg16]

Thanks for your expertise. As the husband wife are using joint checking account for all bills, how does one differentiate husband and wife, for the courts?

[justbroke]

That could make things complicated and please know that whenever there is a non-filing spouse, the Trustee will look very very closely at the so-called marital adjustment. You should definitely expect that the non-filing spouses income and expenses will be reviewed. If you are under-the-median income, there may be less scrutiny, but I would still be aware of the potential for scrutiny.

[tg16]

Very interesting indeed. I mean the wife could actually make the payment from the joint checking account as the husband could, and she a right to, being a joint account. hmmmmmm

[justbroke]

tg16 you echo one of the main issues with non-filing spouses with joint banking accounts. But since this would be a Chapter 7, the inquiry will only be related to how the non-filing spouses debt is being paid. If it's from joint funds and the non-filing spouse is not contributing at the level of spend, then the Trustee "could" see this as the debtor paying the debts of the non-filing spouse. That "could" lead to questions as to whether these are preferential payments to an insider -- the non-filing spouse -- or a fraudulent conveyance.

(Please know that the word "fraud" in "fraudulent" conveyance is not criminal fraud.)

[tg16]

Thanks again for your quick reply.

[tg16]

Just to touch on this thread a bit more, if the non filing spouse does not work, yet her debts have been paid from the joint checking account for 10 years, how would she be able to repay her debts, of not for the filing spouse's income?
I must be missing something here.
I do understand if the filing spouse stops paying his creditors, he can't pay her's. But would a trustee go back 1 year and think it's "fraud" repaying her debt?
Thank you

[justbroke]

I do understand if the filing spouse stops paying his creditors, he can't pay her's. But would a trustee go back 1 year and think it's "fraud" repaying her debt?

Whether it's a transfer that benefits the non-debtor over the debtor is the question. Think of it this way. You owe me $1,000 but instead of paying me, you pay your spouses debt so that you say you have no money. How is that fair to have a preference of one creditor over another? That's why they have the preference rules. Whether or not you were diverting the money away from your own creditors to keep them away from the money, is where the fraudulent transfer may come bit it's likely only a preference. (The term fraudulent just means that it shouldn't have been done or was done to avoid paying a particular creditor. It's not criminal fraud.)

The real question is whether paying the non-debtor spouses creditors over your creditors is a preference. For household expenses, it would not be a preference. For other things... that's the question. It would be no different than taking $10,000 out of your bank account (from wages) and putting it in your spouses account so that the creditors can't get to it.

It may be a non-issue in your case. Again, the question will be when it comes to your marital adjustment when doing the means test. If you're under-the-median, it probably is a real non-issue unless questions during the 341 make the Trustee want to ask more questions.

[tg16]

I understand. If ALL creditors (filing and non-filing spouse's) are being paid out of the joint checking account, 9 months prior to filing Chapter 7, do their monthly payments HAVE to be paid equally, to prevent preference?

I mean all her expenses are paid from that joint checking account: her car insurance, her health bills, her part of the family food bill, her haircuts, her clothes...etc
So, why not the joint household debt she has on her credit card from 5 years back, can't be paid without being questioned???

I guess if I needed to get her credit card statements from 5 years ago (the time we stopped using the card, as she was maxed out) to show how we used it to pay for heating oil, food, insurance, etc, it could be done....I hope

Thank you

[justbroke]

I understand. If ALL creditors (filing and non-filing spouse's) are being paid out of the joint checking account, 9 months prior to filing Chapter 7, do their monthly payments HAVE to be paid equally, to prevent preference?

Just paid. So if you pay the minimum payment due on most of them, but paydown another more rapidly, that shouldn't be seen as a preference... because you were making the minimum payments.

I would say that a preference is knowing that you can't pay the creditors, and decide just to pay one or two (especially "insiders") while not paying the others.

I mean all her expenses are paid from that joint checking account: her car insurance, her health bills, her part of the family food bill, her haircuts, her clothes...etc

A lot of that reads like general household expenses. Those would not be preferences.

So, why not the joint household debt she has on her credit card from 5 years back, can't be paid without being questioned???

Not saying it would be questioned. Joint debt is joint debt and you can pay back joint debt.

I guess if I needed to get her credit card statements from 5 years ago (the time we stopped using the card, as she was maxed out) to show how we used it to pay for heating oil, food, insurance, etc, it could be done....I hope

They -- the Trustee -- would never ask for that. This is about whether you recently diverted money on behalf of an insider, to avoid paying your own creditors. If you were paying everyone the minimum, this is a non-issue. If the payments are related to health, welfare, and safety of the household I would also say that's a non-issue.

Maybe we are both overthinking this. It's usually not an issue. I'm just saying that when you complete your forms, you will have something known as the marital adjustment. That adjustment allows you to take your spouses income and reduce it by the non-filing spouses actual non-joint debt. Some people abuse that adjustment. It's an area where the Trustees will (typically) dig deeper. In an under-the-median case, the Trustee may not even care, but you should be prepared to explain both sets of expenses.

[tg16]

Yes, might be overthinking this.
Once again, thank you for your excellent website and advice!

Best Wishes,
Tom