Marital Adjustment

[TheStiker469]

I have been a follower of this site for a long time. I appreciates everyone's support and information in regarding BK filings. I will be filing a Chapter 13 as household income is $170K a year is over the standard for a 7 with 3 children in Orlando, FL. I am the higher income earner at $100K/annual and she is at $70K/annual income. I will be the only one filing as we have kept our finances separate (debt and bank accounts) and most of the unsecured debt is in my name. Currently she pays all the bills and I send her $3000/mo. as I have gambling issues (which is the reason for bk and can not be trusted to pay the bills. She uses this money to pay the bills and saves most of her own money. Will this effect the chapter 13, or is it best if I pay the bills directly? As for the marital adjustment, I guess I am a little confused. I understand that her credit cards, auto, personal loans would be include, but how is the adjustment done...her amount spread out over 60 months or what she has been paying monthly? What would if she were to have a recent boat or rv purchase in her name, a recent or 401K loan, or monthly subscription to a theme park. Would the trustee see this as abuse or she is free to do whatever she wants with her money. For the most part we are fairly cheap in everything so don't have a bunch of monthly expenses. Thank you so much!

[justbroke]

If I haven't already done so, Welcome to BKForum!

Will this effect the chapter 13, or is it best if I pay the bills directly?

I don't think it will really matter as the court/Trustee is more concerned with your payments to/through the Trustee than they are with how your household finances are managed. By household finances I mean those that are outside the plan. Those expenses that are outside the plan typically include, food, clothing, maintanance, insurance, gasoline, home and auto repairs, and other similar expenses. The expenses that are paid "inside the plan" are typically a mortgage or car and usually nothing else with the exception of the disposable monthly income (DMI).

In some cases, the DMI is not enough and some Chapter 13 debtors pay more than their DMI in order to keep/preserve property. Remember, a Chapter 13 is not only voluntary, but it allows the debtor to keep property which would have otherwise been liquidated in a Chapter 7.

As for the marital adjustment, I guess I am a little confused. I understand that her credit cards, auto, personal loans would be include, but how is the adjustment done...her amount spread out over 60 months or what she has been paying monthly?

Her debt would not be included so it would not be adjusted. She would continue to pay her normal monthly payments on the debt. Think of the marital adjustment simply as allowing the non-filing spouse to continue paying their debt (since it's not included in the bankruptcy). But, be careful. The Trustee will want a lot of documentation related to that debt. It's not enough to say that the spouse pays off their credit cards each month. The Trustee expects that belt tightening happens across the household itself, and would generally not let the non-filing spouse have free reign to spend (otherwise) household income.

What would if she were to have a recent boat or rv purchase in her name, a recent or 401K loan, or monthly subscription to a theme park. Would the trustee see this as abuse or she is free to do whatever she wants with her money. For the most part we are fairly cheap in everything so don't have a bunch of monthly expenses. Thank you so much!

I wouldn't see the theme park as an issue as that is simply just an entertainment expense. I had annual passes to both Disney World and Busch/Sea World. Those were important to keep the family somewhat insulated from the fact that we didn't have any extra money to spend. I don't see anything really bad about a 401(k) loan for the non-filing spouse, but what was the purpose of that loan?

A Trustee could argue that a non-filing spouse can't just do "whatever" they want with their sole income. The bankruptcy and the Trustee may expect that a non-filing spouse contributes to the household expenses, so at least some of that money comes into play. Think about a mortgage. If a mortgage is more than 33% of the filing spouse's income, a Trustee will likely notice this and claim/show that the non-filing spouse is contributing more to the household expenses that it may appear on paper. Likewise, if the household expenses claimed in the filing exceed some percentage of the filing spouse's income, it is probably that the non-filing spouse contribute more to the household than shown on paper.

I first thought that a non-filing spouse should be able to do whatever they wanted with their money, but that's simply not the case. When a debtor is married, and the other spouse doesn't join the filing, then the household income is scrutinized as to what constitutes the non-filing spouse's true monthly expenses. Could a non-filing spouse go out and buy a boat to the detriment of the household? If you pull back the layers of the boat issue, what would the household had done had you not filed bankruptcy? You would likely have given up the boat. The Chapter 13 bankruptcy demands that as well, unless you can afford to pay the creditors the value of the boat during the Chapter 13. The interesting thing will be how those extra toys are titled and how the Trustee decides to treat them.

I would say that it depends on too many things. If you're in a 100% plan, the non-filing spouse's income is not an issue at all. The problems appear to present themselves when there is little to no DMI going to the unsecured creditors. The Chapter 13 Trustee may then "feel" like the non-filing spouse's contributions to the household are too small and something must give.

[TheStiker469]

That makes a lot of sense. Thank you so much for taking the time to answer!

[justbroke]

That makes a lot of sense. Thank you so much for taking the time to answer!

Hopefully your attorney is very good at crafting a workable plan and is able to articulate the marital adjustments. In some circumstances it can be an advantage to having only one of the spouses file bankruptcy while the other maintains their credit. You will not know the Chapter 13 Trustee's reaction to your plan until they examine and review the marital adjustment comibne4d with your plan. Hopefully it works for you and your spouse.