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Bankruptcy before marriage?

Marriage may be a blessed arrangement that brings us together, but with financial problems being one of the most common reasons for divorce, it makes sense to try and clear up any of those issues from earlier in your life before tying the knot.

When BAPCPA (the Bankruptcy abuse prevention and consumer protection act) passed in 2005, new requirements were imposed on debtors wanting to qualify for Chapter 7 bankruptcy. One of those requirements was 11 USC 707(b) or the “means test”. 707(b) requires a debtor to show that their gross income for their family size is less than the median income for a family of the same size in their geographic region. These median income charts are made available through the IRS and are updated annually.

Generally, if a debtor’s household income for their family size is higher than the median, that person is not eligible for a Chapter 7 (liquidation) bankruptcy and must instead file a Chapter 13 (reorganization) bankruptcy. Defining income is usually not difficult, the IRS defines gross income under 26 USC 61, and most everyone has had experience with it as we’ve almost all paid our taxes based on it.

What is more difficult for debtors is that the bankruptcy court doesn’t just count the debtor’s income, but also the income of all household members as well as any “regular contributions” to the household, perhaps from parents or friends who regularly pay a single bill. A marriage will always increase the household size (unless you were living together prior to the marriage), but won’t always increase the gross income of the debtor’s household. If the new spouse has a stellar income, this will disqualify the debtor from filing a Chapter 7, but will help them fund a Chapter 13. If the new spouse has no income, this will help a debtor who would otherwise have been over the income limits qualify for Chapter 7.

In reality, bankruptcy is a concept that comes from biblical times (see Deuteronomy 15:1-2). As a result, it has transformed through all the years and societies of the world and can be very complicated. If you’re considering bankruptcy you should talk to a professional. If you would like to schedule a free consultation with our Jacksonville Bankruptcy Attorney, please call 904-685-1200.

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