Married Couples Should Carefully Weigh Bankruptcy Options
Married couples deciding whether to file bankruptcy must decide whether they should pursue a Chapter 13 repayment plan or a Chapter 7 liquidation‚ as well as whether a joint filing would be more advantageous than a single filing. Each option needs to be carefully considered‚ with the understanding that an unwise choice could result in even further financial setbacks.
Consider‚ for example‚ that a single filing is likely to leave a couple financially vulnerable if the debt existed in both parties’ names. It’s also worth noting that bankruptcy courts will closely scrutinize single-filer cases when the party is married. For these reasons‚ having both parties file is typically the favored solution if a couple intends to remain together.
In the case of In re: Kulakowski‚ the U.S. Court of Appeals for the Eleventh Circuit upheld a bankruptcy court’s decision to dismiss a Chapter 7 bankruptcy case on the grounds that the totality of the circumstances indicated that the debtor’s financial situation demonstrated abuse of the court system.
Specifically‚ a married‚ non-working woman filed for single bankruptcy for debts that were accrued for the benefit of the household‚ wherein her husband was the sole wage earner. However‚ she attempted to argue that only a portion of her husband’s wages – “her” portion – should be considered in determining the couple’s ability to repay. The bankruptcy court rejected this argument and dismissed the case‚ as consideration of his total income meant the filing didn’t meet Chapter 7 income requirements.
The Eleventh Circuit Court of Appeals held that the principal purpose of the bankruptcy code is to offer a fresh start to the honest but unfortunate debtor. The courts have a great deal of discretion in determining whether the petitioner is the honest but needy debtor the code was written to protect.
In determining the wife’s need in the Kulakowski case‚ the court factored in her husband’s total income‚ which was about $5‚500 month and amounted to about $1‚100 more than the couple’s joint monthly expenses.
The wife was seeking relief of some $130‚000 in debt‚ most of which stemmed from credit cards. Those cards were solely in the name of the wife‚ but they were used for the benefit of the entire household and sometimes‚ solely for the benefit of the husband.
The wife did not attempt to argue that her husband’s income should not be considered whatsoever. However‚ she posited that 11 U.S.c. 101(10A) defines a debtor’s “current monthly income” as being whatever amount is paid to the debtor on a regular basis for household expenses. She further reasons that her husband’s total monthly income represents far in excess of her personal share‚ and that only her own share should be considered.
The appellate court noted that a number of recent bankruptcy courts have taken into account the total income of the debtor’s non-filing spouse or even cohabitant‚ as that is considered necessary to evaluate a person’s ability to repay his or her debts.
Interpretation of the totality of circumstances can be quite broad‚ with courts given a wide range of discretion in these matters. In this case‚ the appellate court found that the bankruptcy court had not inappropriately applied this discretion and that the petitioner’s statutory interpretation was flawed.
Beyond that‚ the court found‚ there is a duty to uphold fairness and equity in assuring that people don’t abuse the bankruptcy process. The court took into consideration that the couple in this case had been married for 21 years‚ held joint bank accounts‚ filed joint tax returns‚ jointly owned their homestead and collectively pooled their income and resources to cover their shared expenses. As such‚ the court determined that the sole Chapter 7 filing by the wife was done in bad faith‚ and therefore the bankruptcy court was justified in issuing a dismissal.
If you are contemplating bankruptcy in San Fernando Valley‚ contact Nader‚ Naraghi & Woodcock‚ APLC to schedule your free consultation. Call (800) 568-0707.
In re: Kulakowski‚ Nov. 15‚ 2013‚ In the U.S. court of Appeals for the Eleventh Circuit‚ Appeal from the U.S. District Court for the Middle District of Florida