In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), which completely changed the eligibility for consumers to file a Chapter 7 bankruptcy. BAPCPA was signed into law by President George W. Bush and began affecting cases filed after October 17, 2005. One of the principal changes that BAPCPA made is that it imposed a mathematical formula to determine who qualifies to file a Chapter 7; this formula is often called “The Means Test.”
One of the biggest components of the Means Test is determining the number of “members” who reside in a household. Household size is very important because it helps determine what the applicable median income for your family is. In very general terms, if your family is below median income, you qualify to file a Chapter 7. In Texas, the median income for various household sizes is equal to: 1 member= $41,225.00; 2 members= $55,895.00; 3 members =$60,503.00; and 4 members=$67,296.00. For each additional household member, you get to add another $8,100.00.
Unfortunately, when Congress passed BAPCPA, they failed to define what actually constitutes as a “household member”. So what determines whether or not someone can be included as a member of your household? Most of the time, a household member is synonymous with who you claimed as a dependent on your last tax return. This can include your children, spouse, and/or elderly relatives. Some debtors can run into trouble when they claim an adult child as a dependent. Typically, if a child is older than 18 and lives at home, the parent can usually no longer claim that child as a member of their household for purposes of the Means Test*.
The Bankruptcy Trustee and Judges view this scenario as follows: if the child is an adult and not attending school, nor has a disability, that child should be working to support himself/herself. By paying for the adult child’s expenses, the Court will view the parent as squandering precious resources that could be used to pay off at least some of the debtor’s debts. Is this a realistic position given the realities of the current value of a college education and today’s job market? Possibly not. But regardless, the Court will not typically allow a parent to claim an adult aged child for that reason.
While who a debtor has claimed on their tax returns as a dependent in the past is a good indicator for who should be considered to be a member of a debtor’s household, it is not the sole determination. The best thing to do is to talk to an experienced bankruptcy attorney regarding your situation. If you are interested in filing bankruptcy, the attorneys at Fears Nachawati will be happy to discuss your options with you. For a free consultation, contact us here or call our office at 1.866.705.7584.
*If a child is older than 18 and is either a full-time student or disabled, the parent can still claim the child as a dependent.