Marriage is a meeting of hearts. And finances. And all that comes with it. For some, that could mean bringing great wealth, while for others, great baggage.
Imagine Ken and Karen, who meet in midlife, each on their second marriage — but first time getting love right. When you know you know. And when you’re 50-something, there’s no time to waste. So, they jumped right in.
The problem is, Ken filed for Chapter 13 bankruptcy, so he could save his home from foreclosure. He was paying $300 per month in repayments, which was manageable on his $45,000 salary in Missouri. That was 8% of his pre-tax take-home pay. Not always easy, but doable.
But because his wife, Karen, makes $74,000, the court has increased the repayment to $2,000 a month — 20% on their household pre-tax income. While Ken expected an increase, he did not foresee this.
Ken’s got another 18 months left until it’s paid off. Did he compromise their honeymoon period, or worse, their financial future?
A chapter 13 bankruptcy is also called a wage earner’s plan. Once married, this takes into account the spouse and the household’s financial position (1). It calculates a debtor’s disposable income, as determined by the Missouri Means Test for bankruptcy (2), which Ken and Karen were above.
While strangers on the internet tell Ken to “just get the marriage annulled” and get remarried once the bankruptcy is finalized, that’s not what they want to do. It’s also not the smartest idea to risk being perceived as gaming the system, which could cause more trouble.
Ken and Karen should contact a bankruptcy attorney immediately to evaluate the change in their financial situation and file a motion to change the plan. All expenses should be accounted for to make a case for a lower payment.
There are other instances (3), like a hardship discharge or a temporary suspension of payments. Switching to Chapter 7 isn’t possible because Ken’s income is above the means test. Ken also needs to factor in the attorney’s fees, which could be costly.
Either way, Ken and Karen should get all their documents in order — pay stubs, tax returns and amended financials organized — to decide if a plan modification is justified. A marriage might be scrutinized more (4), because the income boost is predictable.
