Household size is an important factor in many consumer Bankruptcy cases. Most importantly, the Means Test figures are based on the size of the household so it is important in determining eligibility for Chapter 7 or Chapter 13 and in calculating disposable income to be paid in the Chapter 13 plan. It is also relevant in whether or not debtors get a waiver of filing fees. For many families, such as a married couple with young children, household size is pretty clear. For others, it is not so clear. Do adult children living with the debtor count? What if they are in college and living at home? What about an elderly relative who gets social security? Since there is no definition of “household” in Bankruptcy law, courts have analyzed the issue in different ways.
Some courts have used the Census Bureau definition, which is simply the number of people in a structure regardless of the economic relationship between them. Other courts follow the definition of “dependents” used by the Internal Revenue Service, which uses a six part test that looks at relationship, age, financial support and other factors (see IRS Publication 501). The third approach analyzes the debtor’s “economic unit,” and looks at “those the debtor financially supports and those who financially support the debtor.” In other words, look at each person in the household to determine whether they are supported by the debtor (such as minor children) or whether they contribute support to the debtor or household. A Bankruptcy Judge in Georgia recently used the last test after concluding the the Census Test and the IRS Test, while “bright line” tests, did not provide a true picture of the debtor’s economic realities.
If this post looks about as clear as mud, it probably is. Every client’s household must be reviewed to see if each person in the home qualifies as part of the “household” for Bankruptcy purposes. If you are considering a Bankruptcy case but have one of the unusual situations mentioned above, it is important to meet with a good Bankruptcy lawyer in your area who knows how the local courts view household size.