How Big is My Household?

Modern households tend to look very different than they did even a generation or two ago. Individuals living together might or might not be blood relatives, and the courts could rely on various standards when determining household size. But the fact of the matter is that this vital number is at the heart of any bankruptcy proceeding. Here’s the truth about household size and bankruptcy from a chapter 7 bankruptcy lawyer.

How Is Household Size Determined?

The court overseeing a bankruptcy case will decide the appropriate household size. The court-appointed Trustee and the individual seeking bankruptcy relief might have their own opinions about what the number should be, and they can present their argument to the judge. In the end, the court will use available data to determine household size.

There are three basic theories that are used when settling on a figure for household size:

1) Census Bureau–“Heads on Beds”

This approach assumes the definition of the census bureau which looks at the number of residents in a structure without regard to the presence of familial or economic relationships between the individuals.

2) Internal Revenue Service–Dependents

This definition limits the household to persons claimed by the debtor on their tax return.

To fit this strict definition, the IRS first determines individuals to be either a “qualifying child” or a “qualifying relative.” To qualify, a child needs to be a son or daughter, step- or foster-child, sibling, half- or step-sibling, or a descendant of any of these. They must also meet age requirements and must live with the debtor for more than half the year. A “qualifying relative” must also meet certain standards. Consulting with an Ohio bankruptcy lawyer is your best resource for a full run-down on all criteria.

3) Economic Unit

This method calculates the size of the debtor’s household using the number of individuals in the home who act as a single economic unit (e.g. those who support or are supported by the debtor and whose income and/or expenses are intermingled).

Clearly, some of these definitions do not line up with today’s norms and the rapidly changing attitudes about marriage, gender, and the shifting notions of what constitutes a family. The U.S. Trustee’s Program (USTP) allows for “reasonable exceptions” to these set rules in cases that justify the consideration. It is felt that a “long standing economic unit”–a household that has a history, regardless of composition–is one of those reasonable exceptions that can help debtors to accurately determine the number of people in their household. What seem to be the most important factors for the courts to suss out are financial contribution, relationship to the debtor, and time spent living with the debtor, among others.

Why Household Size Matters

Once household size is determined, the court can then figure out where a debtor falls on the income scale. If their total household income for the six months prior to filing for bankruptcy falls below the median income of a family of the same size living in their state, then they will be considered to be eligible for a chapter 7 bankruptcy. If they don’t pass this “means test” then they’ll need to file for a chapter 13 bankruptcy. Since one requires a 3-5 year repayment program and one doesn’t, this is a big hurdle to get over in the bankruptcy filing process.

Real-Life Stakes

In the decades we’ve served as bankruptcy attorneys for Northeast Ohio, we’ve seen many rules upheld and many exceptions to the rules of determining household size. Here is one example that bears this out–a case handled in Canton Bankruptcy Court.

The debtor was the boyfriend, and the following people lived in the same house:

1)      Debtor

2)      Girlfriend 

3)      Debtor’s 7 year old son

4)      Debtor’s 9 year old son

5)      Girlfriend’s 12 year old son

6)      Girlfriend’s 18 year old son 

7)      Girlfriend’s 7 year old daughter

The debtors’ sons stayed with him 8 out of every 14 days. We claimed a household size of seven, based on the debtor, girlfriend, and all their children. Since the girlfriend was part of the household, we also had to include her income in the total household income amount, but we went with her net income, not gross. With a total household size of seven, the household income was below median in Ohio–they passed the means test. 

But the chapter 13 trustee disagreed with our assessment. They felt that only the debtor’s children should be included in household size, and that if we insisted on including the girlfriend’s children, that we would need to include her gross income amount. The chapter 13 Trustee argued to use the IRS Approach while the debtor lobbied for the Economic Unit Approach to be used. 

Ultimately, the court ruled that the Economic Unit Approach was to be used. That said, they brought to light the fact that the debtor only claimed one of his two children and the girlfriend only claimed one of her three children on their tax returns. That would make the household size only four individuals. The court required that the debtor produce evidence of the other childrens’ living arrangements to prove that they were as claimed. Even at that, since the debtor’s sons were living with him only 8 out of every 14 days, they legally counted as one individual in this case. So even if the living arrangements were valid, the household size could only be a maximum of six individuals, which would put their household income above median–they would not pass the means test. This meant that a chapter 13 filing and a mandatory repayment program would be in order.

This real-life application of the importance of household size shows how necessary it is to understand the ins and outs of legal requirements and how they might shift in one’s own personal situation. It seems safe to assume that in Canton bankruptcy court, the Economic Unit approach is likely to be used. Tax returns can provide real insight into the size of a household, and defining “part-time” is vital when a dependent child or relative is being figured into household size.

Rely on Your Local Ohio Bankruptcy Lawyers

It’s pretty clear–there’s a lot to take into consideration when you’re filing for bankruptcy. The size of your household and your income level can make or break your hope for a clean slate, prompting the court to opt for a repayment plan instead. This is just one reason why it’s so important to consult with a bankruptcy attorney. 

James Hasuen and his team of expert chapter 7 bankruptcy lawyers at Hausen Law are proud to serve all of Northeast Ohio, including the Akron, Canton, Cleveland, Wooster, Dover/New Philadelphia, and Youngstown communities. Get in touch with us to learn how we can help you get the best outcome from your bankruptcy case.