How is Household Size Determined in Bankruptcy?
The household size in bankruptcy is determined by how many people are living with you. In bankruptcy, the number in your household can be very important. It can determine whether you are eligible for Chapter 7 bankruptcy. If your household size is large, you can make much more money per year and still file Chapter 7. Bankruptcy determines your household size in some ways that might be slightly different than the IRS or other institutions.
Basic Bankruptcy Household Size
The most basic way to determine your household size in bankruptcy is the “heads in beds” equation. You simply take how many people are staying the night in the house (with some regularity). For instance, 2 parents, 3 children, and a grandmother who sleep in the house would equal a household size of 6.
Some people may stay in the house with you, but contribute their income to the operation of the household. In these cases, you will either need to count their income in the bankruptcy or possibly just exclude this person in your household total. You are generally not allowed to count this person as a dependent household member without reporting that they are paying some of the household bills.
How Household Size May Differs in Bankruptcy
The IRS has a strict system where only one tax filer can count a dependent at any one given time. This system prevents multiple people from using the dependent deduction on their taxes. The bankruptcy system understands that such an interpretation may not fit completely with the reality of household size.
In bankruptcy, it could be possible that more than one person could count a dependent (or household member) at the same time. This would usually come where a spouse pays for child support, but the dependent does not live with them for a greater period of time. If a person is actually paying the same for a dependent, then the bankruptcy system will generally allow the dependent to be counted regardless of the amount they live in the person’s house. They may be included sometimes in the calculation of the household size.
Also, children that are still being supported during college are usually allowed to be counted. Remember, the bankruptcy court is looking for a clear economic reality (expense). The court is not necessarily always looking at whether the person is staying over each night in all cases.
Bankruptcy Looks at Reality
The bankruptcy system understands that reality may differ from IRS standards. For instance, grandparents that are supporting all of the children and grandchildren in their home are a good example. These grandparents may have a valid, larger household size in bankruptcy than what may be allowed on any given year with the IRS. Bankruptcy determines your household size based on economic reality more than any other standard. If you have a valid economic argument to claim a larger household size, it will likely hold up in bankruptcy court.
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