Means Test and Household Size

| Aug 24, 2010 | Bankruptcy |

In order to qualify for a Chapter 7 bankruptcy or to determine how much of unsecured debt must be paid back at zero percent interest through a Chapter 13 bankruptcy, a debtor must pass a Means Test analysis.  The means test is Congress’s 2005 legislation that compares what most families of the debtor’s size in Texas gross pay is according to the IRS’s guidelines compared to what the debtor’s family’s gross pay was in the six months prior to the month in which the bankruptcy is filed.  The second part of the two part test compares the debtor’s local housing, utility and transportation expenses to what the IRS’s guidelines indicate is normal for the area in which the debtor lives.

Courts have reached different conclusions on whether non-family members residing with the debtor may be counted as part of the household size in order to determine which Chapter the debtor was eligible to file.
In the In re Napier case, the court held that debtors may not include boarders as members of their household for purposes of the means test.  However, two years later in In re Smith, the Western District of Michigan court held that “household” as defined by Section 1325(b)(4)(H) means all persons, related or not, who reside in the same housing unit as does the debtor. 
The courts in Ohio and Minnesota in 2007 agreed with the Michigan court that the debtors could include all members of the household in the means test calculation.