Filing for Bankruptcy While Living With Parents

You might need to include your parents' income in your paperwork when filing for bankruptcy.

Nothing in the law prevents people who live with their parents from filing for bankruptcy. However, your ability to qualify for a discharge (the order that wipes out debt) will depend on your financial situation, including the amount of money you make, the amount your parents contribute to your living expenses, and the number of people in your household.

Which Bankruptcy Chapter Can You File?

When you file for bankruptcy, you can expect that your income and household size will play a large part in determining which of the two types of bankruptcy you can file. Your option will depend on whether you have enough money remaining each month to repay your creditors something over time.

  • Chapter 7 bankruptcy. People without much property and income usually prefer to file for Chapter 7 bankruptcy. Filers don’t pay back creditors. They also get to keep (exempt) property needed to work and live, such as furniture, clothing, and a modest car. Nonexempt property—usually luxury items, like collections, boats, and expensive jewelry—gets sold for the benefit of creditors. If you earn too much to qualify for this chapter, you can consider a Chapter 13 bankruptcy.
  • Chapter 13 bankruptcy. This type works well for high-income earners and those people who want to protect assets that they’d lose if they filed for Chapter 7 bankruptcy. The filer must pay all disposable income (the amount remaining after allowed expenses) to creditors for three to five years.

It’s more likely that someone living with parents would file for Chapter 7 bankruptcy (more below). But that’s not always the case. If you must file for Chapter 13 bankruptcy—and would like to learn more—see Chapter 13 Repayment Plan.

Qualifying for Chapter 7 Bankruptcy: The Means Test

Your ability to file this chapter depends on your disposable income. If, after comparing your income and expenses, your disposable income doesn’t exceed a certain amount, you’ll qualify. To find out, the debtor (the person who owes debt) must take the “means test.”

You’ll pass the means test if your household income is less than your state’s median family income for your household size. (If it isn’t, you’ll have a second chance to pass by subtracting allowed expenses from the household income.)

If the test shows that you don’t have enough disposable income to repay your creditors something in a Chapter 13 payment plan, you’ll qualify for a Chapter 7 bankruptcy case. To find your state median income, go to the U.S. Trustee website and select “Means Testing Information.”

(To learn more, see The Bankruptcy Means Test.)

You, Your Parents, and Your Household Size

In some cases, living with your parents might prevent you from qualifying for a Chapter 7 bankruptcy (but not always). Why? Because your court might require you to include your parents in your household, and their income, too, when completing the means test.

Therefore, how many people live in your home is an important issue when you want to file for bankruptcy while living with your parents—and the size will depend largely on where you file your case and how you and your parents pay the bills each month. Here are two common scenarios:

  • You’re unemployed and financially dependent on your parents. The court will likely consider you part of your parents’ household and expect you to disclose your parents’ income and expenses.
  • You’re a “roommate” in your parents’ home. If you pay all of your expenses, including rent, and don’t rely on your parents for financial support, you’ll likely be considered a one-person household, as is common for roommates. You should be aware, however, that some courts will require you to report all people (and earnings) in the home. Also, if your parents give you money regularly, you’ll report it on your income schedule.

Speak With a Bankruptcy Attorney

Most parents aren’t eager to have their financial information included in bankruptcy documents. If you find yourself in this situation, it will likely be worth it for you and your family to make an appointment with an area bankruptcy lawyer who can tell you the requirements of the local court.

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