The Marital Adjustment Deduction and the Bankruptcy Means Test

Learn how the martial adjustment deduction can help you pass the Chapter 7 bankruptcy means test if you file without your spouse.

by: , Attorney

If you are married but filing for bankruptcy without your spouse, you may need the marital adjustment deduction to qualify for Chapter 7 bankruptcy. The marital adjustment deduction is designed to help debtors whose nonfiling spouses have significant income but don’t contribute all of it towards household expenses. Read on to learn more about how the marital adjustment deduction can help you pass the means test and qualify for Chapter 7 bankruptcy.

To learn what the means test is and how it works, see The Means Test and Other Eligibility Issues in Chapter 7 Bankruptcy.

You Must Include Your Nonfiling Spouse’s Income if You Share a Household

If you share a household with your nonfiling spouse, you must include his or her income on the means test even if you are not filing a joint bankruptcy. If your spouse has a significant amount of income, you will typically have a harder time qualifying for Chapter 7 bankruptcy.

However, the means test takes into account the fact that perhaps not all of your spouse’s income is used to pay household expenses. It allows you, in certain circumstances, to deduct some of your spouse’s individual expenses from your household income to help you pass the means test.

To learn more about whether it makes sense for you to file for bankruptcy individually or jointly with your spouse, see Bankruptcy Filing Options for Married Couples.

What Is the Marital Adjustment Deduction?

The means test has a special marital adjustment section which allows you to deduct some of your nonfiling spouse’s expenses to reduce your disposable income. If your spouse has separate individual obligations that don’t benefit you or your dependents, you can deduct them from your household income on the means test. Essentially, the marital adjustment deduction allows you to exclude any of your spouse’s income that is not contributed to your household expenses.

Expenses You May Be Able to Use as Marital Adjustment Deductions

Bankruptcy courts have differing views on what expenses the marital adjustment deduction covers. The following are examples of the types of expenses that might qualify as marital adjustment deductions:

  • your nonfiling spouse’s payroll deductions such as taxes, insurance, union dues, and retirement contributions
  • payments your nonfiling spouse makes on his or her 401(k) loans
  • your nonfiling spouse’s payments on his or her own credit cards, student loans, or other separate individual debts
  • car loan payments and other expenses such as gas, maintenance, and insurance for your nonfiling spouse’s car
  • separate alimony, child support, or other support obligations of your nonfiling spouse
  • payments on attorneys' fees incurred by your nonfiling spouse
  • mortgage, home insurance, and other expenses for real property owned by your nonfiling spouse alone
  • your nonfiling spouse’s cell phone expenses, and
  • gym membership, entertainment, and other recreational expenses of your nonfiling spouse (keep in mind that courts differ on the kinds of expenses they allow for recreation and entertainment).

Be Prepared to Document Your Marital Adjustment Deductions

If you are claiming multiple marital adjustment deductions and they make the difference between you passing or failing the means test, your bankruptcy trustee will want to see documentation showing that your nonfiling spouse actually pays those expenses. Be prepared to provide documentation to support any marital adjustment deductions you claim on the means test

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