“Members of the household” and “Dependents” are frequently used interchangeably, but there’s a significant difference between them in the bankruptcy world. “Dependents” are people who are dependent on you for support, usually your minor children. “Household members” are the people who live under your roof, whether or not they are dependents. The distinction is especially important at two points in a bankruptcy case: (1) when determining if your income is above or below the median for your state, and (2) when determining what expenses are reasonably necessary for your household.
The first step when determining if your bankruptcy case is presumed to be an abuse of the system is to compare your annual income to the median annual income for a similarly sized household in your state. For example, the median income for a household of four in Wisconsin is a little over $76,000 as of today. The median for a household of three is a little under $65,000. Let’s say your wages are the only income for the household, and you make $70,000/year. You’re married with two kids living at home, ages 15 and 25. You would claim one dependent for tax purposes (unless there’s a legitimate reason the 25 year old can also be claimed), but what is your household size? If it’s three, you’re above median and subject to the means test. If it’s four, you’re below median and not subject to the means test.
In my opinion, you have a household of four. I use the “heads on beds” test combined with an “economic unit” test when determining household size. If someone regularly sleeps at your house, he/she is likely a household member. Keep in mind, any income contributed to the household by any household member (paying rent, chipping in for groceries, etc.) must be disclosed as household income. Compare this situation with the single person living in a house with three roommates. This person probably has a household size of 1. If they all pool their money and share expenses, it could be a household of four. However, this is an uncommon arrangement.
Once we know the household size, we turn to your expenses on Schedule J. Even if your case is not presumed to be abusive under the means test, the U.S. Trustee’s Office may move to dismiss or convert your case under the “totality of the circumstances” test. Short version: Even though the debtor passed the means test, he has plenty of money left over each month to fund a Chapter 13 plan after he pays his reasonable expenses. Household size comes into play when analyzing the reasonableness of your expenses. A household of two people probably doesn’t need to spend $1,000 per month on food, while that may be completely reasonable for a household of eight.
As you can see, household size is important in a bankruptcy case. Although the numbers may be identical in many cases, don’t confuse the number of household members with the number of dependents you have. Your 30 year old son who just moved back home probably isn’t a dependent, but he could be a household member.
Bankruptcy attorneys from around the country are taking part in this “Bankruptcy Alphabet” exercise. Please take a few minutes to check out these other blog posts on the letter “M.”
Marriage – by San Francisco Bankruptcy Lawyer, Jeff Curl
Means Test – by Omaha/Lincoln, Nebraska Bankruptcy Attorney, Ryan D. Caldwell
Means Test – by New York Bankruptcy Lawyer, Jay S. Fleischman
Means Test – by Marin County Bankruptcy Lawyer, Cate Eranthe
Median Income – by Livonia Michigan Bankruptcy Attorney, Peter Behrmann
Median Income: Above or Below, Does it matter? – by Los Angeles Bankruptcy Attorney, Mark J. Markus
Meeting of Creditors – by Colorado Springs bankruptcy Attorney Bob Doig
Mistakes – by Cleveland Bankruptcy Attorney, William (Bill) Balena
Modify – by Northern California Bankruptcy Lawyer, Cathy Moran
Monthly Income – by Metro Richmond Bankruptcy Attorney, Mitchell Goldstein
Mortgage Arrears – by Hawaii Bankruptcy Lawyer, Stuart T. Ing
Mortgage Arrears – by Pittsburgh Bankruptcy Attroney Shawn N. Wright
Mortgages & Bankruptcy – by Taylor, Michigan Bankruptcy Attorney, Chris McAvoy
Municipal Bankruptcies – by Lakewood, CA Bankruptcy Attorney, Christine Wilton
Myth: College Degree Value – by Detroit Bankruptcy Attorney Kurt O’Keefe
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