The courts are all over the map when it comes to arriving at the size of a “household,” a critical factor in deciding whether an individual debtor is subject to the means test and whether a chapter 13 plan will endure for three or five years.
Chief Bankruptcy Judge Brian D. Lynch of Tacoma, Wash., was ruling on the confirmation of a chapter 13 plan for a man who said there were four in his household. The debtor counted himself and his two sons who lived with him full time, plus his daughter who lived in his home on alternate weekends and holidays. The debtor paid child support and medical insurance for his daughter.
The chapter 13 trustee objected to confirmation, contending that the household size was three, not four. If the trustee were correct, the debtor would have been subject to the means test as an above-median income debtor, and his plan would have had a five-year duration, not three.
In his August 10 opinion, Judge Lynch said that “household” is not defined in the Bankruptcy Code. Courts, he said, have taken at least three different approaches, even within the Ninth Circuit.
Some adopt the Census Bureau’s “heads on the beds” approach and count everyone in the house, regardless of the economic relationship. Others follow the Internal Revenue Service’s definition of “dependent,” and a third group follows the “economic unit” approach by evaluating the “financial relationships between the people residing in the debtor’s house,” Judge Lynch said.
Someone who is financially dependent on the debtor or whose expenses are intermingled with the debtor’s will be part of the economic unit, he said.
Judge Lynch concluded that the “economic unit” approach is “the most realistic,” following a 2012 opinion by Bankruptcy Judge Jim D. Pappas of Idaho, who focused on the person’s financial dependence on and residence with the debtor. In re Kops, 2012 WL 438623, 2012 BL 37703 (Bankr. D. Idaho Feb. 9, 2012).
Judge Lynch said there was “an additional layer” of difficulty because the daughter only lived with the debtor part time. In that situation, he said, courts take “different approaches to counting part-time household members.”
According to Judge Lynch, some courts divide a part-time resident into fractions based on the number of days the person resides with the debtor. Other courts, he said, fully count part-timers, as did Judge Pappas in Kops.
Like Judge Pappas, Judge Lynch said that Congress adopted “a means test that relies on uniform standards,” choosing to “‘tolerate the occasional peculiarity that a brighter-line test produces,’” again quoting Judge Pappas. Judge Lynch said that an “occasional peculiarity [is] less concerning than the alternative – getting into the weeds of trying to [make] the fractional household member determinations.”
Judge Lynch decided that the daughter was part of the debtor’s economic unit. He confirmed the plan because she was his “financial dependent” and resided “with him more than a de minimis portion of each month.”