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Household Size in the Canton Bankruptcy Court

How big is my household?

December 19, 2014

HOW BIG IS MY HOUSEHOLD?

Today’s household is not your traditional household.  The members of the household may not always be related by blood.  It may be a boyfriend and girlfriend living together with their children.  As a bankruptcy attorney, how many people do you include in the household size?

This is a question I have dealt with in the Canton Bankruptcy Court in a Chapter 13 Case.

The Debtor was the boyfriend.  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 days out of every 14 days.

I claimed a household size of 7 based on the debtor, girlfriend, and all their children. I also only included the girlfriend’s net income as the contribution to household income.

This household size of 7 allowed the income to be calculated as below median.  This was important because this meant the plan was not a mandatory 5 year plan.  However the Chapter 13 Trustee did not agree.  She argued that only the Debtor’s children should be included and if the Debtor. The Chapter 13 Trustee also said that if we insisted on including the girlfriend’s children, then the Debtor needs to include his girlfriend’s gross income to calculate CMI in determining whether the Debtor is above median. This would then result in a mandatory 5 year plan.

So the issue before the Court became “what is the appropriate household size”.

There are 3 basic theories on what constitutes a household size:

1)      Census Bureau “Heads on Beds” Approach

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 relationship between the individuals.  In re Robinson, 449 B.R. 473, 478-479, (Bankr. E.D. Va. 2011).

2)      Internal Revenue Service Dependents Approach

This approach limits the persons the debtor claims on his tax returns as members of his household. Id at 479.

3)      Economic Unit Approach

This method “measures the size of the debtor’s household by the number of individuals in the home who act as a single economic unit”. Id at 479.

The definition of the economic unit approach is defined in In re Morrison:

[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 intermingled or interdependent with a debtor.

 

     In re Morrison 2011 WL 65737, at *6(Bankr M.D.N.C. January 10, 2011).

 

The Chapter 13 Trustee argued to use the IRS Approach. The Debtor argued the Economic Unit Approach should be used.

Ultimately, the Court ruled the Economic Unit Approach was to be used.  However, the Court then said that the Tax Returns provide a rebuttable presumption on how many people are actually part of the household. Since the Debtor only claimed one of his two children on his Federal Tax Return and his girlfriend only claimed 1 of her 3 children on her Federal Tax Return, there is a rebuttable presumption of only 4 people living in the household.  The Court stated the Debtor would have to offer evidence of the other children living there full time and part time. 

The Court then went on to state that if the Debtor was able to produce evidence of the living arrangements of the children as stated above, the most the household size could be is 6.  A household size of 6 would still be above median.  It had to be 7 in order to be below median.

The reason it would only be a household size of 6 because the 2 children living with the Debtor 8 out of 14 days would only count as a fraction of a dependent. So ½ of 2 children is 1.

Therefore we can conclude that when determining household size, the economic unit approach is to be used in Canton.  The Tax Returns provide a rebuttable presumption of who is living in the household.  If the children are living part time in the household, then you need to calculate what percentage of the time the children are living there.

Submitted on 12/19/2014

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