Bankruptcy A-Z: H is for Household
December 27th, 2011 | 
Author: Bankruptcy A-Z: H is for Household.
Household has two components.
The first is in defining consumer debts. A “consumer debt” is debt incurred by an individual primarily for a personal, family, or household purpose. If the majority of your debts are consumer debts, you must complete the means test.
The means test leads to the second component, determining the household size. The 2005 amendments created a new requirement for debtors. They must now compare their incomes and all contributions to the household expenses to the median standard income for a family their size in their state. That comparison requires knowing the household size.
H is for Household.
Courts have typically followed one of three tests to determine who is considered part of the household.
The Census Bureau Definition – Heads on Beds
The argument for using the census bureau’s definition is that the means test is based on the census bureau’s determination of income. Using this definition compares apples to apples.
The Census bureau considers a household to include all the people who occupy a housing unit. They consider a housing unit to be a house, an apartment or other group of rooms, or a single room, when it is occupied or intended for occupancy as separate living quarters. 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 housing unit is a house, an apartment, a mobile home, a group of rooms, or a single room that is occupied or is intended for occupancy, as separate living quarters. Separate living quarters are those in which the occupants live and eat separately from any other persons in the building and which have direct access from the outside of the building or through a common hall. The occupants may be a single family, one person living alone, two or more families living together, or any other group of related or unrelated persons who share living arrangements.
Under this approach, the number of heads on the beds is all that matters. Whether the people share in the overall household expenses or not is irrelevant. Using this approach can lead to having a large household size with little income. The household income only includes that portion of household member’s income that they contribute to household expenses. Household expenses include rent or mortgage, utilities, food and other basic living expenses. This approach can vastly skew reality when you have roommates.
The Internal Revenue Service Definition
The second approach courts have used in determining household size has been the approach by the Internal Revenue Service. The IRS approach defines household as expenses “for the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case.” Under this approach, the debtor can only include in his household size the people he claims as dependents as dependents on his tax return. This determination requires a review of IRS Publication 501.
The problem with following this approach is that the IRS is focused more on income and deductions from that income for the purpose of collecting taxes. It enables households to be created and modified by contract in cases where couples get divorced and determine who gets the tax deduction for the children regardless of where they live. This approach defeats the purpose of the means test, which is supposedly to make sure that the debtor has enough money to provide the basic needs of those people that reasonably rely on him or her financially.
The Economic Unit Test
The third approach is to consider a household as all members of an economic unit. An economic unit typically shares income and expenses and relies on one another financially. Related individuals living under one roof, domestic partners and their children, and roommates who share income and expenses are each an economic unit. Roommates who handle finances separately and adult children living with their parents for convenience only but who do not share income and expenses are not considered economic units.
This approach considers only those individuals who financially rely on one another, or whose income or expenses are intermingled or interdependent, as part of the household. I follow this approach because it is the most flexible to cover the diverse living arrangements that clients have. It allows for the analysis of extended families, living-in relationships, domestic partners (which do not currently qualify as a household under the dependency test), and countless other arrangements.
As you can see, it is not easy to determine the size of the household. For such an important term, Congress never defined it. The courts have been left to interpret it and they have adopted different test. Which one does your jurisdiction follow? A local lawyer will know.
If your household is having trouble with debt and you are in the metro Richmond area, or anywhere in central Virginia, contact bankruptcy and consumer lawyer Mitchell Goldstein at (804) 592-1674 or by email at mitch at mitchellpgoldstein dot com.
Other H posts:
H is for Hearing.
H is for Homeowner’s Association Dues.
H is for Household
or Household Size.
H is for House or House.
H is for Homestead.
H is for Honesty or Honesty (and Fraud Avoidance).
H is for Harassment by Creditors.
Photo Credit: milesopie
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Posted in Bankruptcy, Bankruptcy Alphabet | 
Tags: bankruptcy, bankruptcy alphabet, household, household size