Bankruptcy

Want a Shorter Chapter 13 Plan? Get a Divorce.

By Wendell Sherk, Missouri Attorney

BAPCPA in effect punishes married Ch. 13 debtors if their non-filing spouse has a “decent” income. by forcing them into longer plans.  One solution might be to get a divorce.

Most courts hold that if your income is above the median income for your state, then your Chapter 13 plan must extend for five, not three, years.  That usually means counting every penny of income or you and your spouse during the “CMI period.”  But what if your spouse doesn’t need to file with you?

Too bad, our bankruptcy court in St. Louis recently concluded.  The law allows you to take out your non-filing spouse’s income in calculating the amount of your monthly payment in Chapter 13 — if that money is not used for household expenses (e.g. your spouse’s credit card repayment) — but not for determining how long you must make the payment.  The critical difference being the word “combined” in 1325(b)(4) but not in 101(10A). Unfortunately I can’t find a flaw in the court’s logic, this seems to be the malicious intention of the 2005 Congress.

The result of course is that the law encourages a Chapter 13 debtor to consider getting a divorce from his higher income spouse before filing.  The statute does not require every penny of an ex-spouse’s income to be counted, only that income contributed to the household expenses (or the debtor’s debts).  The calculation of repayment will still be based on what the person can reasonably afford.  But the consumer is given the opportunity to try to do so in a shorter period of time.  Who he lives with or marries after that would not seem to be an issue.

Full post as published by Bankruptcy Law Network on January 31, 2010 (boomark / email).