When you file for bankruptcy, you may be required to submit to a bankruptcy means test. This is a test that the government installed to assist individuals in learning whether or not they qualify for a Chapter 7 bankruptcy. Those that do not qualify for a Chapter 7 can still file for bankruptcy, but will probably have to opt for a Chapter 13 bankruptcy instead. When you are doing the means test, your household size will play an important role. In fact, the size of your home can have a significant impact on whether or not you pass and qualify.
The means test will look at your average monthly income for the six months prior to your bankruptcy and will compare this with the median state income for a household of the same size. This means that if you have four children and are married, the government will compare your income with the average income of others in the same situation. If your household income is less than the state median after the test, then you will pass the means test and can file for your Chapter 7 bankruptcy.
If your income is greater than the state median, then you may need to continue taking tests to prove that you qualify. In the end, if you are not able to prove the necessity of a Chapter 7 bankruptcy the government may only allow you to file for a Chapter 13 bankruptcy. Oftentimes, if a filer doesn't pass the means test right away, then you can deduct certain amounts of money from your income based on the average IRS local and the national expense standards. Depending on the size of your household, you will have different deductions which will directly affect your ability to file for a Chapter 7 bankruptcy.
Interestingly enough, the Bankruptcy Code never actually defines what a household is. Your household does not have to be traditional, and be a two parents and children. Instead, you may be able to use a different approach when you are determining the household size for the means test. There are a few different ways that you can determine the size of your household. Before using any of these methods for calculation, you will want to make sure that this is an accurate representation honored in your state.
One of the most common ways to calculate a household for bankruptcy purposes is the "heads-on-beds" approach. Only some courts allow debtors to use this option, which includes any people living in the home. Some jurisdictions argue against the heads-on-beds approach because they believe that it doesn't take relationships into account. This is because friends, renters, roommates, or other non-related individuals can be included in this approach.
Some jurisdictions count households using the IRS dependency standard. In this calculation, a household only includes people that you can claim as your dependents on your tax return. Only a minority of reports use this to calculate a household size because it is so restrictive. Most courts opt to use the economic unit approach. This is the most common method that courts use, and takes into account all the individuals that reside with you and act as an economic unit. This means that you can include anyone that you may support financially, even if you can't claim that person as a dependent.
In courts that use this option, they will consider the amount of financial support that you provide to a person, and whether you share your assets, income, and expenses with that person. The court will also look at any other ways that you intermingle your finances, and whether you have any joint property or debts together. The court will also look at any financial support that you receive from that person. If you want more information about how to count your household for the bankruptcy means test, a local bankruptcy lawyer will be able to assist you. Talk to an attorney promptly for assistance!