Bankruptcy

How Big is my Household for Chapter 7 or Chapter 13 Means Test Purposes?

By Jonathan

I have written a lot on this blog about the median income test and the means test.  Each of these pre-filing calculations turn on both your household income as well as your family size.

While it would seem that the number of people in your family ought to be easy to calculate, it turns out that issues do arise relating to this very important calculation.

I recently received an email from a blog reader named Sheila who asks the following law school exam type of question:

I have been told conflicting things about determining household size for purposes of the chapter 7 means test.  My 20 year old son currently lives with me for free. He will probably move out in the next couple months.  My 18 year old daughter lives with me, but will be going away to college in the fall. A divorce decree allows my ex-husband to use her as a dependent for tax purposes.   My 16 year old daughter lives with me and is my dependent for tax purposes.  How do I determine my household size for the purpose of the means test?

Here is my response: First, I think that Sheila's question calls for legal advice, which I cannot offer on this blog.  I do not know the location where Sheila may be filing, so I have no way to research the family size issue for her jurisdiction.  However, I can help identify some of the issues that Sheila and her lawyer ought to think about.

• 20 year old son - if the 20 year old son is living with her at the time of filing and has no definite plans to move out, I think that there is a good argument to count him as part of the household for means test purposes.  If he is working, however, his income may be included as part of the household gross income.  If his income is included for median income test purposes, I think you could make an argument that because he is not part of the filing, his separate expenses should count as line item expenses that reduce disposable income on Form 22 (the means test).  You would definitely want to see if there are any circuit court or bankruptcy court holdings regarding this issue in your jurisdiction.
• 18 year old daughter - because the ex-husband claims the daughter as a dependent on his tax returns, it may be difficult for Sheila to include the daughter as a member of the household.  Several years ago, a Northern District of Georgia bankruptcy judge ruled against me on this issue, finding that the income tax dependency was a deciding factor.  In that case, however, the college age child was not living with my client.  Here, it appears that Sheila's daughter lives with her, eats her food, consumes electricity and gas, Sheila may have a contrary argument.  This might be an issue that Sheila's lawyer will have to argue.
• 16 year old daughter - I think that Sheila can count the 16 year old as a member of her household

So, Sheila's household could be as small as 2 or as large as 5 depending on how her bankruptcy judge rules on the household size issue.  Her lawyer is going to need to research this issue for holdings in the jurisdiction where this case might be filed, and he/she may need to present arguments if there is no binding precedent.

Unfortunately this means that Sheila may be a "test case" for this household size issue.

Full post as published by The BK Blawg on January 10, 2009 (boomark / email).