One of the questions I frequently hear from married clients who are considering filing bankruptcy is:

“I’m filing bankruptcy individually. Why do you need my spouse’s pay stubs? My spouse isn’t filing bankruptcy. Why should their income have anything to do with my bankruptcy?”

This is a very reasonable question, and I understand why it sometimes causes confusion, particularly when the spouse who is not filing bankruptcy is reluctant to provide financial information.

The short answer is that the bankruptcy laws require me to examine household income and determine how much of the non-filing spouse’s income is regularly contributed toward household expenses. This information is important when determining whether you qualify for Chapter 7 bankruptcy and, in a Chapter 13 case, evaluating how much you may be required to pay into a repayment plan.

Let me explain how this works and, just as importantly, what it does NOT mean for your spouse.

Married Couples Can File Bankruptcy Individually or Jointly

First, let’s clear up a common misconception.

Just because you are married does not mean that you and your spouse must file bankruptcy together. A married couple has the option of filing:

• A joint bankruptcy petition, with both spouses filing together.
• An individual bankruptcy petition, with only one spouse filing.

There is no requirement that both spouses file bankruptcy simply because they are married.

In fact, I represent married individuals filing bankruptcy without their spouse quite frequently. There are many reasons why one spouse may need bankruptcy relief while the other does not.

For example, perhaps the debt is primarily in one spouse’s name. Maybe one spouse has substantial credit card debt, medical bills, or personal loans, while the other spouse has maintained good credit and does not need bankruptcy protection.

Whatever the reason, filing individually is perfectly permissible.

However, there is an important distinction between filing individually and calculating household income.

The Bankruptcy Law Changed in October 2005

When Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, commonly referred to as BAPCPA, it made substantial changes to the bankruptcy laws.

One of those changes involved the way income is calculated when determining eligibility for Chapter 7 bankruptcy.

The law generally requires that the income of a non-filing spouse be disclosed and considered in evaluating the household’s financial circumstances.

However, there is an important distinction that I want to explain.

The law does not simply say that every dollar earned by the non-filing spouse must automatically be counted as income available to the filing spouse.

Under 11 U.S.C. § 101(10A), amounts regularly paid by another person toward the household expenses of the debtor or the debtor’s dependents are included in the calculation of current monthly income.

Consequently, the amount of the non-filing spouse’s income that is actually contributed toward household expenses is important.

The portion of the non-filing spouse’s income that is used for their own separate expenses, rather than regularly contributing to the debtor’s household expenses, may qualify for what is commonly called a marital adjustment.

This distinction can make a substantial difference in determining whether someone qualifies for Chapter 7 bankruptcy.

What Is a Non-Filing Spouse?

In bankruptcy practice, we commonly refer to a spouse who is not filing bankruptcy as the NFS, or Non-Filing Spouse.

For example, let’s say a husband comes into my office because he is struggling with credit card debt, personal loans, and other financial obligations.

He wants to file Chapter 7 bankruptcy, but his wife is not filing.

During our initial meeting, he provides his pay stubs, tax returns, bank statements, and other financial documents.

One of my questions will be whether his wife is working.

If she is employed, I will generally need to obtain her pay stubs as well. Depending on the circumstances, I may need up to six months of pay stubs to properly calculate the household’s income and any applicable marital adjustment.

This is where the confusion sometimes begins.

The husband may tell his wife that I need her pay stubs, and she understandably responds:

“Why do they need my pay stubs? I’m not filing bankruptcy. You’re the one filing!”

I hear this concern frequently.

The answer is simple: I need the information to properly prepare the bankruptcy case. I do not need her pay stubs because she is filing bankruptcy. I need them because the bankruptcy laws require me to examine the household’s financial circumstances and determine what portion of her income is regularly contributed toward household expenses.

It is important to disclose the income first and then properly account for any applicable marital adjustment. We cannot simply ignore the non-filing spouse’s income.

The Good News: We Can Also Account for the Non-Filing Spouse’s Expenses

There is another important part of this analysis that many people do not realize.

Although the non-filing spouse’s income must be disclosed and examined, we can also account for certain expenses and financial obligations belonging to that spouse.

This is sometimes referred to as the marital adjustment.

For example, let’s assume the husband is filing bankruptcy individually and his wife is not.

The wife’s income may be reported in the initial income calculation. However, if she has expenses that are personal to her and are not regularly used to support the filing spouse or the household, those expenses may qualify for an adjustment.

Depending on the circumstances, these might include:

• Payments on credit cards that belong exclusively to the non-filing spouse.
• Personal loans that the non-filing spouse is responsible for paying.
• Payments on a vehicle owned and financed by the non-filing spouse.
• Automobile insurance and other vehicle-related expenses.
• Gym memberships.
• Golf club memberships.
• Recreational expenses.
• Other personal expenses belonging to the non-filing spouse.

For example, in In re Travis, 353 B.R. 520 (Bankr. E.D. Mich. 2006), a bankruptcy court in our own Eastern District of Michigan addressed the marital adjustment and the expenses of a non-filing spouse.

The court recognized that expenses the non-filing spouse pays for their own clothing and personal items can qualify for a marital adjustment, even when those expenses might otherwise fall into general household expense categories.

This is an important distinction.

The non-filing spouse should not automatically be treated as though every dollar of their paycheck is available to pay the filing spouse’s creditors.

The important point is that we need to properly identify the income and expenses of both spouses.

Of course, not every expense automatically qualifies for a deduction. The applicable bankruptcy rules, the nature of the expense, and the particular circumstances determine what can be included. We also have to avoid counting the same expense twice.

The bankruptcy means test is a detailed calculation. Properly accounting for the non-filing spouse’s financial obligations can make a significant difference in the outcome.

Why Does My Attorney Need Six Months of Pay Stubs?

The Chapter 7 means test generally looks at your average income during the six full calendar months preceding the month in which your bankruptcy is filed.

This is commonly called Current Monthly Income.

For example, if you file bankruptcy in November, the calculation generally looks at income received from May through October.

The calculation is not necessarily based on what you are earning today or what your annual salary happens to be.

It is based on the income received during that six-month period.

This is why I may ask for six months of pay stubs from both the filing spouse and the non-filing spouse.

I want to make sure that the income calculation is accurate and that we are properly accounting for the non-filing spouse’s contributions to household expenses and any applicable marital adjustment.

If your income has recently changed because of overtime, a job change, a reduction in hours, a bonus, or some other circumstance, those details can also be important.

I want to identify those issues before filing the bankruptcy petition, not after the case has been filed.

The Bankruptcy Trustee May Ask for Your Spouse’s Pay Stubs Too

Another reason I insist on obtaining the non-filing spouse’s pay stubs is that the Chapter 7 trustee or the United States Trustee may request them.

The trustee has a responsibility to examine the financial information in your bankruptcy case.

If you are filing Chapter 7, the trustee may want to verify that you properly completed the means test, disclosed the appropriate income, and accounted for any marital adjustment.

If you are filing Chapter 13, the household’s income and expenses may be important in determining whether your proposed repayment plan satisfies the applicable requirements.

I do not want to prepare a bankruptcy petition using incomplete financial information and then have the trustee discover that we did not properly account for the non-filing spouse’s income.

My approach is to obtain the necessary information upfront, perform a thorough analysis, and address any potential issues before the bankruptcy is filed.

Does My Non-Filing Spouse Have to Sign Anything or Attend the Bankruptcy Hearing?

No. Not simply because I need their pay stubs.

This is perhaps the most important distinction to understand.

If you are filing bankruptcy individually, your spouse is not automatically becoming a bankruptcy debtor just because their income is examined as part of the household financial analysis.

For your spouse to become a joint bankruptcy debtor, we would need to prepare a joint petition.

That would involve obtaining your spouse’s Social Security number, having your spouse sign the bankruptcy petition and schedules, completing the required credit counseling, and participating in the bankruptcy process, including the 341 meeting of creditors.

If your spouse is not filing, none of that is required simply because I need their income information.

I do not need your spouse’s signature on your individual bankruptcy petition. Your spouse does not have to take the required bankruptcy credit counseling course or attend your 341 hearing simply because they are the non-filing spouse.

There may be circumstances in which a trustee requests information or documentation from a non-filing spouse, but that is different from making that spouse a bankruptcy debtor.

Your spouse’s income information is part of the financial analysis. It does not make your spouse a party to the bankruptcy case.

The Bottom Line: I Need the Pay Stubs, Not a Joint Bankruptcy Filing

Over the years, I have represented many married individuals who filed bankruptcy without their spouse.

It is a perfectly legitimate way to file bankruptcy, and there is no reason to assume that both spouses must file together.

However, when you are married and living together, the bankruptcy laws generally require me to examine your spouse’s income and determine how much is regularly contributed toward household expenses.

That is why I ask for the non-filing spouse’s pay stubs, sometimes covering six months.

I also need to examine the non-filing spouse’s individual expenses so that we can properly account for any applicable marital adjustment.

So, if your spouse is not filing bankruptcy, please don’t be alarmed when I ask for their pay stubs. It does not mean your spouse is filing bankruptcy, and it does not mean your spouse will become responsible for your debts simply because you file.

It simply means I am doing what is necessary to properly prepare your individual bankruptcy case.

I have practiced bankruptcy law exclusively for more than 35 years and have represented more than 25,000 people. One of the most important parts of my job is making sure that the bankruptcy is prepared correctly from the beginning.

If you are married and considering filing bankruptcy individually, I can explain how your spouse’s income and expenses will affect your particular situation.

Call my office at 313-962-4656 to discuss your circumstances and determine whether filing Chapter 7 or Chapter 13 individually is the right approach.