Extended Families and the Means Test

The trend for families to combine incomes and live under a single roof is rising in certain areas of the country and the financial realities for some people require that they move ‘back home.’ The latest change in the bankruptcy law requires a ‘means test’ to be performed for all consumer debtors seeking relief under the bankruptcy code. The general purpose of the means test is to limit the number of debtors who can file a Chapter 7 bankruptcy, which requires that your income be lower than a certain value determined by the household median income of the county where you reside.

The question we receive is: how do I calculate the means test if I live at home with my parents?

The answer: your parents income will be considered in the “means test” to the extent that they contribute to your living expenses.

The official language is that your current monthly income “includes any amount paid by any entity other than a debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents.” 11 U.S.C. 101 Section 101(10A)(B).

Your current monthly income “includes any amount paid by any entity other than a debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents.”

What the trustee really wants to know is if you have any disposable income. If you are living at home, expense free, and pull a paycheck for $1,000.00 month, the argument will be that you have $1,000.00 per month that can be paid towards creditors. The expenses regularly paid by your parents would be added to your current monthly income for the purpose of the means test.

The answer applies to all living arrangements outside of marriage, as defined by the U.S. Bankruptcy laws.

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