This determination, of course, may be critical as to whether you are over or below the median income for your state.
In the Robinson case, the debtor was the unmarried father of four children. On the average the debtor’s children spent an average of four days and four nights with the debtor. The debtor maintained a three bedroom apartment, paid child support each month, but never claimed the children on his tax returns as dependents.
One of the debtor’s children required bi-weekly doctor and urologist visits. The court pointed out that the terms “household” and “household size” appear frequently on form B22C and that those terms are derived from 11 U.S.C. Section 1325(b) and 11 U.S.C. Section (707)(b)(2), but that these terms are not defined anywhere in the Bankruptcy Code.
In its analysis the court recognized that bankruptcy courts have employed three tests in determining household size.
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First, the courts have looked to the definition set forth by the Census Bureau. That definition defines household size as “[a] household consists of all the people who occupy a housing unit.” This is what is called the “heads on beds” approach which depends solely on the amount residents in a structure and is not concerned with the presence of familial or economic relationship between the individuals.
The second approach courts have used in determining household size has been the approach by the Internal Revenue Service. The IRS definition of household size relies on 11 U.S.C. 707(b)(2)(A)(ii)(I) of the Bankruptcy Code. More particularly this definition is defined as expenses “for the debtor, the dependents of the debtor, and she spouse of the debtor in a joint case.” In this analysis the debtor is limited to household size only for the persons the debtor claims as dependents as dependents on his or her tax return. In determining whether a child qualifies as a dependent it is suggested that a person should look at the IRS dependency test as stated by IRS Publication 501.
The third approach which bankruptcy courts have taken in determining the size of a debtor’s household is the economic unit approach. This approach measures the size of the debtor’s household by the number of individuals in the home who act as a single economic unit. In fact the court stated:
“[a]s the court in In Re Morrison explained: [A] household will include Individuals who are financially dependent on a debtor, individuals who financially support a debtor, and individuals whose income or expenses are inter-mingled or interdependent with a debtor.”
In this case the court rejected the heads on bed approach because that approach because someone could be a resident of a house but not financially dependent upon the head of the household and may not contribute to the expenses of the house. See In Re Jewell, 365 B.R.796, 707-798 (Bankr. S.D. Ohio 2007).
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The court also rejected the approach taken by the IRS and relied upon In Re Herbert, 405 B.R. 165, 170 (Bankr. W.D.N.C. 2008) in rejecting the IRS methodology. In the Herbert case, the court pointed to the fact that that court permitted the debtor to claim a household size of eleven because for many years the debtor had financially supported his girlfriend, and the girlfriend’s eight other children. The court referred to language in the Herbert decision in which the court found that rather than being “contrived or concocted for the purpose of this bankruptcy filing,” the financial support of these ten other individuals was “simply the fact of this debtor’s life.”
In ruling that a debtor’s household size should be determined by the economic model, the court noted that the purpose for which the Census Bureau determines household size is radically different from the purposes of the Bankruptcy Code and is for the purpose of determining the demographics of those residing in particular areas of the United States.
It also noted that the purpose of the IRS Code was to create income for the government while the policy of the Bankruptcy Code is to provide the honest but unfortunate debtor with a fresh start.
In this case the court held that the debtor was entitled to declare his household size as three because the children were, as the court said, best described as a fractional member of the household.
More specifically, the court explained that it would apply a “functional equivalent standard for the number of persons that together comprise the economic unit. As the children spend four-sevenths of each week with the Debtor, they mathematically approximate, when viewed in the aggregate, two full members of the economic unit. Thus, this Court holds that the Debtor together with his children comprise a household of three.”
This case was decided March 10, 2011, Eastern District Of Virginia, Richmond Division.
What’s to be learned from this analysis? It’s best to contact a bankruptcy attorney in your area and determine what case law will apply to your case.