March 29, 2006
When is a family of 3 not a family of 3?
Recently I appeared with a client at a 341 hearing and the trustee raised an interesting point about family size calculations for purposes of the median income/means test calculation.
As you may know, when you first come to my office, you have to provide me income data for the past 6 months so I can run a median income test. If your average monthly income during that 6 month period is less than the average monthly income for a similarly sized family in Georgia, we are free to file Chapter 7 or a less than 5 year Chapter 13.
As you might expect, the average income for a family of 3 is higher than the average income for a family of 2. So it is easier for a 3 person family to fall below the median income limit (meaning you have more choices).
In my case, my client filed individually. He is married and has one teenage child from a prior marriage. He pays child support.
When I prepared this case, I showed that he had a family size of 3 (debtor, spouse and teenage child). The trustee objected saying that because the child does not live with him, the actual family size is 2.
This raises a number of interesting questions. What if a debtor and his ex-wife share custody equally? What if the child lives at college? What if the child is spending her junior year of high school abroad? What if the ex-spouse has legal custody but the child actually lives some or all of the time with the debtor.
There are no answers yet for these questions but it is easy to see how these types of issues will spawn a lot of appellate litigation.
Filed under Chapter 13 issues, Georgia Bankruptcy, Median income test issues by Jonathan
Comments on When is a family of 3 not a family of 3? »
Does family size also include those who are older than 18 years of age? For exemption purposes dependent children are required to be under 18 years of age….does family size for the means test include those children living with the filing debtor who are older than 18?
I don't think that age has anything to do with family size. If you have an adult child who lives with you, I see no reason why that adult child would not be treated as a countable member of your family.
The issue arises when the adult child lives with you only part time, or attends college out of state.
However, I have not seen any case law yet on this subject - I sure this issue will be debated over the months and years to come.
I have this issue before the court on May 2, 2006 in the van meter case. BR Court, western district of washington, case # 05-54165. Look up my brief on PACER. I am amending the brief to note that dependents for tax purposes is not part/requirement of household member. Earlier versions of the bill HR 833 Sec 102 ( 106th Congress) required household member to be a "dependent" and was to be codified as 707(b)(2)(A)(v). Final version eliminated dependency requirement.
We are about to file bankrutcy and do not know if our daughter that is 19 and her son that is 1yr
are part of the family for the means test? Dose she have to be a dependent on our taxes ? Our Attorney is not sure. Also we live in Minnesota.
LaRonda:
I suspect that the U.S. Trustee in Minnesota has a position on this issue - your lawyer may want to call the trustee to ask.
I would take the position that your daughter and grandchildren are dependents if you support them. Also, take a look at attorney Bill Beecher's post of 4/21/06.
Hello,
I live in Florida with my husband and teenage son. My husband also has shared custody of his four young children. He did have substantial parenting time — 47 percent after the nasty custody battle — but his ex moved the children to Michigan two years ago, without permission from the court or my husband, so our substantial parenting time has been greatly diminished. However, the children still have rooms in our home, still live here during the summer, every long weekend, and most holidays, and we not only pay child support (the court only ordered $550 a month due to our previous substantial parenting time) but buy everything for them when they're here (plus increased grocery and utility bills, etc). and we spend a great deal on travel expenses for the transitions. My husband also gets two claim two of his children as legal dependants for tax purposes.
As for my husband's bankruptcy, the court battle cost us over $100,000 plus we've had thousands in medical bills so we were wiped out. We have lived off of our credit cards and by refinancing our home. We have only freelance income and, because our house payment is now so high, we cannot afford to continue paying the credit card debt on top of everything else. If forced into chapter 13 bankruptcy we would lose everything because we simply cannot afford any more payments (but from what we've seen the court doesn't care — they will not look at actual payments spent to care for our family, on court and medical fees, transition expenses, etc. but instead will only go by the national median, which isn't realistic in our case). However, the only way we will qualify for chapter 7 is if we can claim at least the two children that are our legal dependants for tax purposes.
Will the Florida bankruptcy trustee say our family only consists of three or will he/she allow us to include at least two of my husband's four children since we claim two of them as dependants, pay child support, and they all live here part of the time? We have tried to find a local attorney to answer this but no one seems familiar with either situation — kids living in our home part time as well as our freelance editing income — so no one can tell us. And we're afraid to file without knowing because we don't want to be forced into a chapter 13 and then lose everything. We'd rather take our chances and see what happens with the credit card companies. Any suggestions or ideas where we can find this information?
Thanks so much.