How Big is Your Household for the Chapter 7 Means Test?
Congress reserved Chapter 7 bankruptcy for those who are truly needy. Their thinking was that many people with substantial incomes were filing for Chapter 7 when they could really pay off their debts. So Congress created a “means test” that applicants must pass before they can file for Chapter 7 protection.
Put simply, the means test looks at your income and compares it to a household in your state that is the same size. If you are below the median (mid-point), then you automatically qualify. However, there are sometimes questions that arise about just how large your household is for purposes of the test. You might be divorced and splitting custody with your ex, or you might have stepchildren living with you. Contact a Chapter 7 bankruptcy attorney at Nowack & Olson today to discuss whether you qualify.
Household Size Matters
The more people in your household, the higher your income can be and still pass the means test. For example, here are median incomes for Florida in November 2020 (they are regularly adjusted):
- Two people: $65,935
- Three people: $70,815
- Four people: $84,165
As you can see, your income can be much higher the larger your household. For some of our clients, one additional dependent can make the difference between passing the means test or having to use alternate means.
How the Trustee Defines Household
Unhelpfully, the bankruptcy code does not define “household” for purposes of the means test. However, the U.S. Trustee has stated that household size includes the debtor, his or her spouse, and any dependents the debtor can claim under the Internal Revenue Service dependency test. The trustee then points to the IRS Publication 501 for more information about how to determine dependents.
Relevant IRS Definitions
The IRS defines a dependent as a “qualifying child” or other “qualifying relative.” Its publication offers a detailed definition of each term, but we can summarize them briefly:
A “qualifying child” must be a daughter, son, foster child, stepchild, half-sibling, or descendant of any of them. The child must be under age 19 or under 24 if a student. A permanently and totally disabled child can be of any age. The child also must have lived with you for more than half of the year, and the child could not provide more than 50% of his or her own support.
A “qualifying relative” must be either related to you or live with you. However, the relative cannot be your qualifying child or the qualifying child of another taxpayer. You must provide more than 50% of this dependent’s support for the year, and his or her gross income cannot be too high ($4,200 in 2019). There is no age limitation.
If you believe you have a qualifying child or relative, speak with an attorney. The rules are more detailed than the summaries offered above, and you might qualify to add additional dependents, which can make passing the means test easier.
Are You Interested in Chapter 7 Bankruptcy? Call Us
The Plantation bankruptcy lawyers at Nowack & Olson have helped more than 20,000 get a fresh financial start. Call us today to schedule a free consultation, 888-813-4737.