The size of your “household” can determine whether you pay into your Chapter 13 case for 3 or 5 years, and how much you pay each month.
In a blog last month I told you how the number of people in your household can decide whether you can file a Chapter 7 “straight bankruptcy” case or not. This same issue can also have a huge impact if you are filing a Chapter 13 “payment plan” instead. It can mean the difference of many thousands of dollars, or even tens of thousands of dollars.
How does this work?
1. The required length of your payment plan depends on the amount of your household’s income compared to the “median family income” of households of the same size. The more people in your family, the higher income you can have and still be under the “median family income” amount. If you are, you are allowed to pay for only three years instead of five.
2. The amount of your required monthly plan payments is determined in large part by the amount of allowed deductions of expenses from your income, and many of these allowed expense deductions are based on the size of your household. So the larger your household, the larger the expense deductions, and the less of your monthly income that need to pay each month into your Chapter 13 plan.
Being required to pay for only 36 months instead of 60, and being allowed to pay less each month can obviously result in paying much less to complete your Chapter 13 case.
OK, fine, so household size can really make a difference in a Chapter 13 case. But aren’t we stuck with whatever size our household happens to be?
Yes, in very conventional households that’s true. It may be perfectly clear how many people are in certain households. So, a married man and woman and their minor child equals a three person household.
But many people live in more ambiguous home environments. Consider the following possible members of a household:
- children of divorced parents who live part-time with each parent
- young adults who continue to live with one or both parents
- unmarried couples living together, both gay and straight
- elderly parents who live with their adult child
In each of these situations, including or excluding these potential household members can make the difference between the debtor’s Chapter 13 case lasting three years or five, and can make a substantial difference in the expenses allowed and thus in amount of the required monthly plan payment.
To illustrate, let’s say the couple in the above simple three-person family lived in Southern California and had a household annual income of $70,000. Here is the current table for “median family income” in California:
|Number of Persons in Household||1||2||3||4||Each Add’l|
|Median Family Income||$47,433||$61,752||$66,034||$74,122||Add $7,500|
If that married couple filed a Chapter 13 case, they would have to make payments in their Chapter 13 case for five years instead of three because their income at $70,000 is larger than the “median family income” amount for a family of three.But now let’s say the wife’s minor child from a previous marriage lived with them half-time, and she did not receive any child support, or the husband’s retired elderly parent lived with them, with no change in household income except social security (which is not included in “median family income).” If either the halftime child or the parent is counted as a fourth member of the household, then this household’s $70,000 of income is now less than the “median family income” for a household of four. So their Chapter 13 plan would now only need to be for three years instead of five.
On the expense side, focusing on just a single expense to keep it simple-food-here is the table of the present amounts allowed in that category:
|Number of Persons in Household||1||2||3||4|
|National Standards for Food Monthly||$301||$537||$639||$765|
The difference in this table between the food allowance for a three-person household and four-person one is $126. So if either the halftime child or the elderly parent would count as a member of the household, that would mean that this household could pay $126 less each month into a Chapter 13 plan (accounting only for the food expense, although this would also increase some other expenses as well). As a result, just from this increase in allowed food expense, this couple would pay $126 times 36 months, that is $4,536, less into their Chapter 13 plan.So that leaves one big question: under Chapter 13 law does the halftime child with no child support or the elderly parent receiving social security count as an additional person of the household?
Unfortunately, Congress did not make this at all clear. It did not define “household” or “individuals,” or any of the other related terms. So courts have struggled to come up with an appropriate standard for determining who is and who is not a member of the household for these purposes.
The bankruptcy courts n Southern California have generally not used a strict, narrow definition as in some other parts of the country (for example, married couple and their full-time minor children). Instead the local courts usually use a more pragmatic “heads-on-beds” one. This looks at the reality of the household, how many people are actually living there, sleeping regularly in that home. So in the above example either the half-time child or the elderly parent would likely be considered as part of the household. Therefore, that household’s income would qualify that couple for a three-year Chapter 13 case, and they could use the expenses of a family of four, reducing their plan payment accordingly.