Determining household size is an important measurement when facing bankruptcy. In fact, correctly determining household size can determine your eligibility for Chapter 7 bankruptcy.
For some households, determining household size is simple. But for families that include relatives, extended family, or children living some or all of the time within a household, determining size can be more difficult.
Why household size matters
Most sections of the bankruptcy means test, which determines eligibility for Chapter 7 bankruptcy, focus on income and expenses. But the first part of the test compares your average income during the six months preceding your bankruptcy with the median income of a same-size household in your state. If your income is below the median, you are considered eligible for a Chapter 7 bankruptcy.
As household size increases, median income also increases. So a family of three or four typically has a greater income than a single-person household. Yet you can still pass the bankruptcy means test if your household size is large enough and your income falls below the state median.
Calculating household size
Bankruptcy laws do not define what constitutes a household, meaning there are different approaches to calculating household size that courts use. However, to determine exactly which rules and method your jurisdiction follows, consider speaking with a knowledgeable bankruptcy attorney to learn more.
The most direct way to determine your household size in bankruptcy uses the “heads in beds” equation. You simply count how many people are staying the night in your house (with some regularity). For example, two parents, two children, and one grandparent who regularly sleep in the house would equal a household size of five.
Some courts allow debtors to count only individuals who they can claim as dependents on their tax returns. This approach is quite restrictive, however, because it doesn’t count people who stay and live within a household but cannot be considered a dependent, such as a grandparent in some cases, for example.
Many courts use an economic unit approach when determining household size. The economic unit approach looks at the number of people in your household who act as a single economic unit. It generally allows debtors to count any individuals living in their household whom they financially support, depend on, or whose finances are connected with their own.
Household members who don’t live with you full-time
In some cases, household members such as children may live with you for only part of the year, perhaps as a result of divorce and shared custody. Whether such individuals count toward your household size typically depends on the rules of your jurisdiction. Courts often consider the amount of time that they live within your household and the amount of financial support that you provide.
If children are away at college, for example, and you are still financially supporting them, such children could be counted. The Bankruptcy Court looks for clear economic realities, meaning it wants to take a realistic look at your expenses. Therefore, even children who are not staying overnight in your household might still count toward household size.
Navigating bankruptcy? We’re here to help
When facing bankruptcy, having an experienced legal team on your side can be a tremendous asset. Sawin & Shea, LLC, will help keep you protected from creditors and be your guide while navigating bankruptcy.
You don’t need to go it alone when trying to figure out Indiana’s bankruptcy code and which moves are best. Sawin & Shea, LLC, provides committed, non-judgemental support and assistance that’s essential for getting people a fresh start.
We’ve helped thousands of people to manage bankruptcy, and we would love for the opportunity to help you too. Speak to an attorney today at (317) 759-1483. Or contact us online.