§ 94.3     Accounting for Spouses
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 94.3, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

For no obvious good reason, BAPCPA has complicated the treatment of a spouse’s income and expenses in Chapter 13 cases. The problem is present for all married Chapter 13 debtors but particularly acute when “amounts reasonably necessary to be expended—” are determined in accordance with § 707(b)(2)(A) and (B) for a debtor with CMI greater than applicable median family income.

[2]

The general statement of the problem is that in the definition of CMI in § 101(10A)1 and again in § 707(b)(2)(A) and (B), the drafters of BAPCPA seem to have misconceived of joint debtors as one “debtor” and one “debtor’s spouse,” rather than as two debtors. But this misconception appears inconsistently so that in some places spouses of debtors are treated the same as “debtors” for all purposes even when it is not a joint case;2 in other places spouses of debtors are left out entirely;3 in still other places, the debtor’s spouse counts only if the spouse is also a “dependent”;4 and in still other places, the debtor’s spouse is accounted for only if not also a dependent.5 This erratic treatment of spouses by BAPCPA means that accounting for the income and expenses of a spouse for purposes of the disposable income test in § 1325(b) and in other contexts is illogical and difficult and requires the exercise of much judgment.

[3]

Section 302 of the Bankruptcy Code was not amended by BAPCPA and is not ambiguous:

§ 302. Joint cases
(a) A joint case under a chapter of this title is commenced by the filing with the bankruptcy court of a single petition under such chapter by an individual that may be a debtor under such chapter and such individual’s spouse. The commencement of a joint case under a chapter of this title constitutes an order for relief under such chapter.
(b) After the commencement of a joint case, the court shall determine the extent, if any, to which the debtors’ estates shall be consolidated.6

In a joint case, there are two debtors, two bankruptcy estates and one bankruptcy case. The estates may or may not be consolidated.7

[4]

The definition of CMI in § 101(10A) is where the problems for married Chapter 13 debtors begin. In a Chapter 13 case, all of the debtor’s postpetition earnings start out as property of the Chapter 13 estate.8 In a joint Chapter 13 case, all of the earnings of each debtor are property of the respective Chapter 13 estate. Under new § 101(10A), the average monthly income from all sources that “the debtor receives (or in a joint case, the debtor and the debtor’s spouse receive)” is drawn into CMI.9 Under § 101(10A)(B), in a joint case, any amount paid by an entity other than the debtor or the debtor’s spouse on a regular basis for the household expenses of the debtor, the debtor’s dependents and the debtor’s spouse (if not otherwise a dependent) is also included in CMI.10

[5]

CMI cuts across estates and debtors to create a single “fund” that does not respect the separate incomes of the separate debtors. Section 101(10A)(A) includes all of the debtor’s and the debtor’s spouse’s income in CMI for a joint case. Section 101(10A)(B) adds to that combined income amounts paid by others on a regular basis for the household expenses of the debtor, the dependents of the debtor or the spouse of the debtor—but only if the spouse is “not otherwise a dependent.”

[6]

What happened to the dependents of the debtor’s spouse in § 101(10A)(B)? CMI includes amounts paid by others on a regular basis for the household expenses of the debtor and the debtor’s dependents but does not include amounts regularly paid by others for the household expenses of a dependent of the debtor’s spouse who is not also a dependent of the debtor.

[7]

This imbalance points to the next question: who is the “debtor” and who is the “debtor’s spouse” for purposes of the CMI calculation in § 101(10A)? We never had to ask questions like that before BAPCPA because we had two debtors in a joint case and could talk about each with the same substantive content. With BAPCPA, it makes a difference to declare which individual in a joint case is the debtor and which is the debtor’s spouse.

[8]

Imagine a husband and wife who each have children from prior marriages. The wife’s ex-spouse pays $500 a month to a school for the tuition, room and board of their child and that child is not a dependent of the husband. If the wife is the debtor, there is a good argument that the $500 a month paid by the wife’s ex-husband is included in CMI by § 101(10A)(B) as an amount paid on a regular basis for the household expenses of a dependent of “the debtor.” But if the husband is the debtor and the wife is the “spouse of the debtor,” the $500 paid for the household expenses of a dependent of the debtor’s spouse is not captured by § 101(10A)(B). So, again, who is the debtor and who is the debtor’s spouse in a joint case? Nobody knows. The concept is foreign to bankruptcy practice before BAPCPA.

[9]

But the problems of accounting for spouses multiply when we consider § 707(b)(2)(A) and (B). Upon proper objection, a Chapter 13 debtor must pay all projected disposable income to unsecured creditors under § 1325(b)(1).11 If the debtor’s CMI is less than applicable median family income, “amounts reasonably necessary to be expended—” for purposes of calculating disposable income are determined by § 1325(b)(2)(A) and (B).12 If the debtor’s CMI is greater than applicable median family income, “amounts reasonably necessary to be expended—” are determined in accordance with § 707(b)(2)(A) and (B).13

[10]

Section 707(b)(2)(A) and (B) continue the schizophrenia with respect to debtors and debtors’ spouses. Under § 707(b)(2)(A)(ii)(I), the “debtor’s” monthly expenses shall be the amounts specified in the listed IRS Standards “for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case if the spouse is not otherwise a dependent.”14

[11]

The general rule of construction that “the singular includes the plural”15 does not contribute usefully in this situation. Pluralizing “debtor” doubles every monthly expense described in § 707(b)(2)(A)(ii) leading to even greater nonsense. Two debtors and two spouses is not what the words contemplate.

[12]

In a joint case only “the debtor” gets to reduce CMI by monthly expenses. In other words, only one monthly expense deduction is allowed for joint debtors. Of course, all of the debtor’s spouse’s income was included in CMI by § 101(10A); but after BAPCPA, spouses don’t get separate monthly expense deductions in a joint case.

[13]

If a husband and wife file separate Chapter 13 cases, each would be a “debtor.” If each spouse has CMI greater than applicable median family income, each would get monthly expenses calculated under the IRS Standards for each debtor and the dependents of that debtor. The point here is obvious: BAPCPA does not treat married debtors equally or the same when accounting for income or expenses when CMI exceeds applicable median family income.

[14]

Debtors’ attorneys have to do important extra work to determine which filing configuration is best for married debtors. Filing a joint case may be better for debtors when CMI for the joint debtors will be greater than applicable median family income and determining “amounts reasonably necessary to be expended—” in accordance with § 707(b)(2)(A) and (B) produces less disposable income than would be extracted by a Chapter 13 trustee applying § 1325(b)(2)(A) and (B) to one or both debtors in a separate case. If one debtor has separate CMI greater than applicable median family income and one does not, it is possible that filing a separate case for the one spouse with CMI greater than applicable median family income gives enough protection to the couple while producing the least projected disposable income. You cannot answer these questions without doing the math three ways—two separate cases and one joint.

[15]

These calculations get more convoluted as you dig deeper into the “amounts reasonably necessary to be expended—” allowed by § 707(b)(2)(A) and (B). The reasonable and necessary expenses for health insurance, disability insurance and health savings accounts described in § 707(b)(2)(A)(ii)(I) are allowed “for the debtor, the spouse of the debtor, or the dependents of the debtor”—without regard to whether the case is a joint case! In other words, even a married debtor not filing jointly enjoys the full deduction from CMI for health and disability insurance for the debtor, the dependents of the debtor and the spouse of the debtor. Also, married debtors filing separately would each be entitled to the full deduction. That’s what the statute says.

[16]

Keep going. The family violence expenses allowed by § 707(b)(2)(A)(ii)(I) extend to “the debtor and the family of the debtor” without regard to whether the case is a joint case. No mention of spouses here at all. “Family,” of course, is an expansive concept that would include the family violence expenses of a nonfiling spouse.

[17]

Then there is § 707(b)(2)(A)(ii)(II), which includes in monthly expenses the continuation of actual expenses “paid by the debtor” for the care and support of an elderly, chronically ill or disabled “household member” or member of “the debtor’s immediate family.”16 What happened to the debtor’s spouse? The debtor’s “immediate family” is defined to include “the spouse of the debtor in a joint case who is not a dependent.”17 But there is no mention of a deduction for expenses paid by a debtor’s spouse for the care or support of the spouse’s separate parents or children.

[18]

It is easy to imagine a debtor’s spouse who supports an elderly parent in a nursing home. That spouse’s parent falls outside the statutory definition of the “debtor’s immediate family.” But the income the debtor’s spouse uses to pay the nursing home expenses certainly is included in CMI in a joint case. What a deal: § 101(10A) captures all of the spouse’s income in a joint case, but § 707(b)(2)(A)(ii)(II) forgot about the spouse’s expenses for an elderly dependent of the spouse. Perhaps this spouse needs to be the debtor in this joint case.

[19]

Section 707(b)(2)(A)(ii)(IV) presents a twist on the same issue. Under this subclause, the debtor’s monthly expenses include the actual expenses “for each dependent child” for documented school expenses.18 Whose dependent child are we talking about here? The section says it is “the debtor’s.” What happens to education expenses of children who are dependents of the debtor’s spouse but not dependents of the debtor? Is this a place where § 102(7) would read “debtor’s” as “debtors’?”

[20]

Problems for spouses continue when BAPCPA tries to account for secured debts. Section 707(b)(2)(A)(iii)(II) includes in “the debtor’s average monthly payments on account of secured debts” an allowance for “additional payments . . . necessary for the debtor . . . to maintain the possession of . . . property necessary for the support of the debtor and the debtor’s dependents.”19 In joint cases, what happens to debts secured by property necessary for the support of a spouse who is not a dependent or for the support of a dependent of a spouse who is not also a dependent of the debtor? Once again, examples are plentiful, but the logic of this omission is not easily found.

[21]

Imagine a spouse who co-signed for the purchase of a car for that spouse’s child from a previous marriage. Or the spouse who pays the mortgage on a living place for that spouse’s parents. These payments would likely be included in the calculation of average monthly payments on account of secured debts if the payments were made by “the debtor” for the support of the debtor’s children or the debtor’s parents. But spouses in a joint case are not treated the same as debtors by the words in § 707(b)(2)(A)(iii).

[22]

Official Form B22C further convolutes the already unsteady treatment of spouses by BAPCPA. As detailed elsewhere,20 Official Form B22C undertakes the (impossible) task of presenting in a single form a Statement of Current Monthly Income,21 a calculation of commitment period22 and a calculation of disposable income.23 For purposes of the Statement of Current Monthly Income required by Interim Rule 1007(b)(6), CMI is defined by § 101(10A) to exclude the income of a debtor’s spouse except in a joint case—with an exception to the exception in § 101(10A)(B) for amounts regularly paid by an entity other than the debtor for the household expenses of a spouse who is a dependent of the debtor, when the case is not a joint case.24

[23]

In contrast, the commitment period calculation in § 1325(b)(4) requires comparison of “the current monthly income of the debtor and the debtor’s spouse combined” to applicable median family income without regard to whether the case is a joint case.25 This concept—CMI of the debtor and the debtor’s spouse combined—is obscure at best and for married debtors not filing jointly, it is internally inconsistent and impossible of certain calculation.26 But Part I of Official Form B22C requires all debtors—even married debtors not filing jointly—to schedule all of the income of the debtor and all of the income of the debtor’s spouse. A “marital adjustment” in Lines 13 and 19 is not sufficient to correct for the fundamental misdirection in Part I. The result is that Official Form B22C will not accurately generate a Statement of Current Monthly Income for many married debtors, whether filing jointly or not filing jointly.27

[24]

The “marital adjustment” in Lines 13 and 19 of Official Form B22C is worded in terms of “you or your dependents” and the amount of income in Line 10, Column “B”—the “spouse’s income” column—that should be deducted to arrive at CMI. The “you or your dependents” refers to the debtor’s dependents only. Once again, it could make quite a difference in the amount of the “marital adjustment” which spouse is the “debtor” and which is the “debtor’s spouse” because only amounts paid on a regular basis for the household expenses of the debtor’s dependents stay in CMI.

[25]

The spouse confusion continues through the expense deductions allowed to Chapter 13 debtors by Parts IV–VI of Official Form B22C when the debtor has CMI greater than applicable median family income. There is only one column in Parts IV–VI. The instructions repeatedly say “enter the amount you actually incur” or a similar phrase. Does “you” include the spouse of you? The instructions to Part I of Official Form B22C are certainly clear that the spouse’s income is included in Column “B.” Where are the instructions for claiming expenses actually incurred by the “debtor’s spouse” in each of the lines of Parts IV–VI? There are no such instructions, perhaps because the form drafters could not resolve the inconsistent treatment of debtor and spouse in clauses (ii), (iii) and (iv) of § 707(b)(2)(A).

[26]

This is an unsettling situation that is in marked contrast to the simplicity, consistency and efficiency that debtors need to negotiate Chapter 13 cases. To cover all the permutations of income and expenses for debtors and spouses and dependents of each or both, counsel may have to prepare and compare Forms B22C for married debtors filing separately, married debtors filing jointly and married debtors only one of whom is filing. Declaring who is the debtor and who is the spouse of the debtor will significantly change the calculation of CMI for some married debtors and will then affect the reductions in CMI allowed by § 707(b)(2)(A) and (B) to get to disposable income.


 

1  See 11 U.S.C. § 101(10A), discussed in §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

2  See, e.g., 11 U.S.C. § 707(b)(2)(A)(ii)(I) (“Such expenses shall include reasonably necessary health insurance, disability insurance, and health savings account expenses for the debtor, the spouse of the debtor or the dependents of the debtor.”), discussed in § 478.1 [ Health and Disability Insurance ] § 95.21  Health and Disability Insurance.

 

3  See 11 U.S.C. § 707(b)(2)(A)(iv), discussed in § 486.1 [ Total Priority Debts and Divide by 60 ] § 97.1  Total Priority Debts and Divide by 60.

 

4  See 11 U.S.C. § 707(b)(2)(A)(iii)(II), discussed below in this section and in § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

5  See 11 U.S.C. § 707(b)(2)(A)(ii)(I) and (II), discussed below in this section and in §§ 479.1 [ Family Violence Expenses ] § 95.22  Family Violence Expenses and 481.1 [ Elderly, Ill or Disabled ] § 95.24  Elderly, Ill or Disabled.

 

6  11 U.S.C. § 302.

 

7  See § 7.1 [ Debtor Must Be an Individual ] § 10.1  Debtor Must Be an Individual; Spouses Allowed.

 

8  See 11 U.S.C. § 1306, discussed in § 46.1 [ Postpetition Earnings ] § 46.3  Postpetition Earnings.

 

9  11 U.S.C. § 101(10A), discussed in §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

10  See 11 U.S.C. § 101(10A)(B), discussed in §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

11  11 U.S.C. § 1325(b)(1), discussed in § 466.1 [ In General ] § 92.1  In General.

 

12  See § 470.1 [ Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Applicable Median Family Income ] § 93.1  Section 1325(b)(2)(A) and (B): “Amounts Reasonably Necessary to Be Expended—” When CMI Is Less Than Median Family Income.

 

13  See 11 U.S.C. § 1325(b)(3), discussed in § 471.1 [ Big Picture: Too Many Issues ] § 94.1  Big Picture: Too Many Issues.

 

14  11 U.S.C. § 707(b)(2)(A)(ii)(I).

 

15  11 U.S.C. § 102(7).

 

16  11 U.S.C. § 707(b)(2)(A)(ii)(II), discussed in § 481.1 [ Elderly, Ill or Disabled ] § 95.24  Elderly, Ill or Disabled.

 

17  11 U.S.C. § 707(b)(2)(A)(ii)(II).

 

18  See 11 U.S.C. § 707(b)(2)(A)(ii)(IV), discussed in § 483.1 [ Education Expenses ] § 95.26  Education Expenses.

 

19  11 U.S.C. § 707(b)(2)(A)(iii)(II) (emphasis added), discussed in § 485.1 [ Average Monthly Payments on Account of Secured Debts ] § 96.1  Average Monthly Payments on Account of Secured Debts.

 

20  See §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income, 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation and 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

21  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.

 

22  See § 379.2 [ Form B22C: Commitment Period Calculation ] § 36.20  Form 122C-1: Commitment Period Calculation.

 

23  See § 380.1 [ Form B22C: Disposable Income Calculation ] § 36.21  Form 122C-2: Disposable Income Calculation.

 

24  11 U.S.C. § 101(10A), discussed in §§ 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income and 468.1 [ Current Monthly Income: The Baseline ] § 92.3  Current Monthly Income: The Baseline.

 

25  11 U.S.C. § 1325(b)(4) (emphasis added), discussed in § 493.1 [ Applicable Commitment Period Calculation ] § 100.1  Applicable Commitment Period Calculation.

 

26  See § 493.1 [ Applicable Commitment Period Calculation ] § 100.1  Applicable Commitment Period Calculation.

 

27  See § 379.1 [ Form B22C: Statement of Current Monthly Income ] § 36.19  Form 122C-1: Statement of Current Monthly Income.