The word “household” appears in over a dozen sections of the Bankruptcy Code, but it is not defined in the Code. Household income and size are extremely important in bankruptcy and determine whether someone qualifies for a Chapter 7 or the length and amount of a plan payment in a Chapter 13. A debtor’s median income is determined by their family size.
In a Chapter 7, a bankruptcy debtor’s above – or below – median status determines whether the debtor is subject to the means test.
In a Chapter 13, a bankruptcy debtor’s status as above – or below median determines whether the debtor’s maximum plan term is three or five years. It also determines whether the debtor’s expenses, for the purpose of calculating the debtor’s projected disposable income, are based on the means test or Schedule J.
There are three general approaches to the determination of the debtor’s household size:
- The “heads on bed” approach was first articulated in In re Ellringer, 370 B.R. 905 (Bankr. D. Minn. 2007) and is based on the U.S. Census Bureau’s definition of “household” as including “all the people who occupy a housing unit.”
- The financial dependency approach originated in In re Jewell, 365 B.R. 796 (Bankr. S.D. Ohio, 2007). Under this approach, the debtor’s household consists of only those household members financially dependent on the debtor.
- More recently, several courts have embraced an “economic unit” test. Under this approach, a debtor’s household encompasses the debtor and those individuals who operate as a single economic unit with the debtor.
Regardless of what test is used, the key is not to “double dip”. In other words don’t count someone’s expenses under household size and not count their income. Under all tests, everyone who lives under one roof will have to be dealt with one way or another. Timing a bankruptcy to file before someone moves in or out could be very important to qualifying for bankruptcy and to the outcome.
For more information about the incomes and expenses of those living under one roof would be counted in a bankruptcy, please schedule a free consultation with our law office, Arkovich Law