Household Size and the Chapter 7 Means Test

When taking the Chapter 7 means test to see if you qualify for Chapter 7 bankruptcy, your household size determines how much you can earn. Suppose your household size and income don't exceed the median amounts in your state. In that case, you'll be eligible and won't need to take the second part of the Chapter 7 means test.

Although counting the number of people in your household is usually straightforward, it can get tricky. In this article, you'll learn about factors you'll consider when determining the correct household size.

What Is the Means Test?

The means test looks at the gross income of everyone in your household during the six months before you file. If your household income is below the median income in your state, you'll qualify to file a Chapter 7 bankruptcy.

However, just because your income is above the median doesn't mean you can't file for Chapter 7 bankruptcy. The second part of the Chapter 7 means test lets you subtract expenses from your gross income. You'll qualify if you don't have enough "disposable income" or income left over to repay all or part of your debt through a Chapter 13 plan.

For instance, you'll be able to deduct some actual expenses, such as taxes and child care, as well as some predetermined expense amounts for things like rent and utilities. The predetermined expense amounts help prevent people with extravagant lifestyles from taking advantage of Chapter 7 bankruptcy.

Learn more about the current monthly income for the bankruptcy means test.

Why Does Household Size Matter?

When filling out your official bankruptcy forms, you'll include figures that you'll find on other sites. For instance, the median income figures for your state appear on the means testing page of the U.S. Trustee Program webpage. It lists median income figures by household members so you'll need to know how many people you can count on your means testing forms.

The bigger your household size, the higher your income can be and still be below the state median income. For instance, the median income for a household of one will be lower than for a family of six.

Who Counts as a Household Member?

Unfortunately, neither Congress nor the courts provide hard and fast rules on what counts as a member of your household for purposes of using the state median income charts.

When determining who is part of your household, it helps to think of your household as a unit. Your household functions as an entity, and the persons in it depend on you to provide support. If you live together, you and your spouse are a household of two, and you, your spouse, and your toddler are likely a household of three.

Issues arise, however, because households aren't always straightforward. Here are some examples of sticky problems.

Do Household Members Have to Be Tax Dependents?

Many courts use the Census Bureau's definition of a household as "all the people who occupy a housing unit as their usual place of residence." Known as the "heads on beds" rule, this would include children or stepchildren even if they aren't dependents on your tax return.

However, some courts won't count someone as a household member if that person isn't a dependent for tax purposes. Learn about taxes in bankruptcy.

Can Household Members Live With You Part-Time?

What if you support your child in college who lives away from home for most of the year? Or what if your children live with you part-time under a joint custody agreement?

If you pay a substantial portion of the expenses of children who live with you part-time, there's a reasonable chance they will be part of your household. Because each situation is different, this article cannot provide an answer other than "it depends."

You'll want to speak with a local bankruptcy attorney about the particulars of your case.

When in Doubt, Seek Legal Advice

Consult with a bankruptcy lawyer if you're unsure whether a person counts as part of your household, and relying on that person would qualify you for Chapter 7. A local bankruptcy attorney can tell you how the judges and trustees in your jurisdiction count members of households.

Learn your options if you can't afford a bankruptcy lawyer.

Need More Bankruptcy Help?

Did you know Nolo has been making the law easy for over fifty years? It's true—and we want to make sure you find what you need. Below you'll find more articles explaining how bankruptcy works. And don't forget that our bankruptcy homepage is the best place to start if you have other questions!

We wholeheartedly encourage research and learning, but online articles can't address all bankruptcy issues or the facts of your case. The best way to protect your assets in bankruptcy is by hiring a local bankruptcy lawyer.