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H Is For Household

Bankruptcy Alphabet - HIn the bankruptcy alphabet, many words do not have their ordinary meanings.  It’s like a Twilight Zone of law, and you expect to see Rod Serling puffing on a cigarette off to the corner.  Of those twisted terms, few are odder than “household.”

In the old days, you’d look to your own income and expenses when determining whether you could pay your bills. This makes sense, doesn’t it? If you don’t make enough to cover the debts, you might need to file for bankruptcy.

These days, however, we’re tied to the means test – a series of calculations designed to figure out whether you’re eligible to file for Chapter 7 bankruptcy or whether you’ve got no choice but to file for Chapter 13.

The means test is based not on your actual income and expenses, but rather the accepted standard levels based on your household size. The bigger the household, the better your chances of qualifying for Chapter 7 bankruptcy.

This would be confusing even if the bankruptcy laws gave a definition of the term “household.” Unfortunately, such a definition is nowhere to be found.

How Is Your Household Determined?

Only in the world of bankruptcy do we need to have a conversation about the size of a household. In the real world, we tally up the number of people in the house who are related to one another and who depend on one another for financial support.

But remember, here we’ve got a lot at stake. Large number means large median income for means test purposes. Large median income means it’s easier to get into a Chapter 7 bankruptcy.

The Census Bureau defines the term as follows:

[A]ll the people who occupy a housing unit. A house, an apartment or other group of rooms, or a single room, is regarded as a housing unit when it is occupied or intended for occupancy as separate living quarters; that is, when the occupants do not live and eat with any other persons in the structure and there is direct access from the outside or through a common hall. A household includes the related family members and all the unrelated people, if any, such as lodgers, foster children, wards, or employees who share the housing unit. A person living alone in a housing unit, or a group of unrelated people sharing a housing unit such as partners or roomers, is also counted as a household.

This definition was used in a landmark case out of Minnesota called Ellringer, which held that you could include in your roommate in if he or she contributes to the expenses of the household. This has been called the “heads on beds” approach.

In In re Jewell, 365 BR 796 (Bankr. SD Ohio 2007), however, the bankruptcy court looked to whether the person filing for bankruptcy financially supports an alleged household member rather than using the “heads on beds” approach.

An Arizona bankruptcy court, in In re Epperson, 409 BR 503 (Bankr. D. Az. 2009), agreed with Ellringer that the “heads on beds” approach was more logical to the roommate or third-party living situation. Epperson correctly said that Congress did not state that two unrelated roommates or a cohabitating couple should not be counted as part of the same household. In the absence of Congressional guidance, it is unreasonable to conclude that two persons living in the same home are not a part of the same household.

Shacking Up, Roommates, Lovers And Platonic Rent-Splitters

When I graduated from law school I lived with a guy I found in a classified ad, which was fairly typical for New York City recent grads in those days. He worked nights, I worked days. In the entire time we lived together, I think I saw him all of four times.

But we both kicked in for the rent, splitting some expenses such as telephone and cable. Under the bankruptcy laws, we would have been a household of two people in spite of the fact that ours was a business relationship only.

Strange, no?

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By |November 8th, 2011|

About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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