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Presentation of the bankruptcy must be properly pleaded to the court where the non filing spouse has good income. Indeed, even if the presentation is correct, the bankruptcy trustee and the US Trustee may raise issues that must be effectively responded to for the case to succeed. In Re Kulakowski vs. U.S. Trustee is an example of a case that went awry for debtor. In this case, Susan Kulakowski, and her husband were married for 21 years, shared a joint checking account, filed joint taxes returns, jointly owned their home, and pooled their income and expenses. Hence, they were a single financial unit. The debtor had no income. Her husband’s net income exceeded the household expenses by $1,100 monthly. For instance, husband’s net income was $5,000 vs. household expenses of $3,900. Therefore, even if debtor’s income was zero, their household income was positive $1,100 monthly. Another way of saying this is that debtor qualified for a Chapter 13 with a plan payment of $1,100 which will pay about $66,000 of her unsecured debt. Debtor actually had $136,470 of unsecured debt. Applying the math, debtor could pay 48% of her unsecured debt over 60 months in a Chapter 13.

However, debtor filed for Chapter 7 relief herself, seeking to discharge $136,470 for a fresh start. What aggravated the situation was that the debt was incurred for the benefit of the household and her non filing husband. In other words, debtor did not incur the $136,470 going around the world having an affair with a third party lover. The bankruptcy court used the totality of circumstances test to dismiss Mrs. Kulakowski’s Chapter 7 petition for abuse under Section 707 of the bankruptcy code.

Debtor appealed to the 11th Circuit Court of Appeals arguing that Section 707(b)(3) makes no reference to “current monthly income,” which figures prominently in Section 707(b)(2)’s Means Test.

The 11th Circuit found that equity favored considering the husband’s income under the facts of the case. “Although we sympathize with Mrs. Kulakowski’s perception that the bankruptcy court paternalistically penalized her for having a wealthy husband, we also recognize the bankruptcy court’s overriding mandate to effectuate fairness and justice in applying the bankruptcy code.”

Lawrence Bautista Yang is a graduate of Georgetown University Law Center and has been in law practice for thirty years. He specializes in bankruptcy, business and civil litigation and has handled more than five thousand successful bankruptcy cases in California. He speaks Mandarin and Fujien and looks forward to discussing your case with you personally. Please call (626) 284-1142 for an appointment at 1000 S Fremont Ave, Mailstop 58, Bldg A-1 Suite 1125, Alhambra, CA 91803.