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Common Questions About Household Income in Bankruptcy Cases
We are often asked questions about how a client’s bankruptcy filing will be impacted by the income of other people in the home. The answer really depends on the type of bankruptcy case and the particular living arrangement. Here are the more common scenarios:1. Married couples: If you are residing with a spouse, that spouse’s income must be included. This does not mean that the other spouse has to file bankruptcy with you, but their income must be included on both the actual budget and the means testing form. This is often frustrating to clients in situation where the spouse’s do not share finances or even when the spouses are contemplating divorce. However, the local courts have consistently ruled that a spouse’s income must be listed unless the spouses are living in separate households. 2. Romantic Partners: Clients are often surprised when we ask them about the income of their romantic partners living in the same house, and we certainly understand that surprise. However, the United States Trustee always insists that we list both the income and expenses of partners, and the courts have sided with the UST on this issue. The reasoning is that the income of the non-filing partner is relevant to determine whether the filing client is fairly dividing expenses in the household. An extreme example of this would be a person who has $20,000 a year in income (clearly not too high to disqualify the person from filing bankruptcy) sharing a household with someone making $200,000 a year. In such a scenario, the courts could find that the debtor should be paying a far lesser share of the household expenses and thus have the ability to pay something back to creditors.3. Family Members: Although less important in Chapter 7 cases, the bankruptcy trustee in Chapter 13 cases will inquire about income from adult children and other family members living in the home, even if those people have not historically contributed to payment of expenses. However, in most cases, these extra income sources actually help the chapter 13 plan move forward. In a minority of cases, the extra income can cause the percentage paid to creditors to go up.It’s important that you disclose all income sources to your attorney when you meet to discuss your bankruptcy options.