Chapter 7: Median Income Definition Within Extended Family

One of the more interesting issues involved in the means test is defining the size of the debtor’s household. Household size together with total household income determines whether the debtor is above the state’s median income and therefore subject to means testing. A new bankruptcy client presented the situation where she and her daughter live in a home owned jointly with her mother. The client’s income is under the median income for a two person family. The mother pays part of the mortgage, but otherwise, the mother keeps her money separate to pay only the mother’s personal bills. The daughter is primarily responsible for the household bills and expenses and totally responsible for her child. However, if you add the mother’s income to the daughter’s income the total household income is well above median income for a household of three people.

I have not yet received the detailed income and expense records to calculate a means test analysis. It appears that by the law’s definition the household consist of three people. I am not aware of any means test provisions that would allocate less income to the household because of the unwritten agreement among the income earners concerning their respective responsibility for expenses and dependants within the household. The means test allows debtor’s to show "special circumstances" to adjust means test results. In this case, I don’t’ know if the mother’s refusal to contribute her fair share of income to the expenses of others would be a special circumstance that would avoid the results of means test analysis.

This case illustrates that means test definitions are unclear, complicated, and could impose unfair results on families truly unable to meet legitimate expenses.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida