New York City might be known for its large number residents who live alone, but roommate and similar situations are still quite common—witness HBO’s Girls‘ satire of them. Thus, it’s not unheard of for debtors to file bankruptcy even if they don’t share a close relationship with the people they’re living with. This becomes a problem because chapter 7 New York bankruptcy eligibility depends on the relationship between the income of the debtor’s “household” and the state’s median family income. The Bankruptcy Code adopts the Census Bureau’s definition of “median family income” in section 101(39A), but what about “household”? Surprisingly, the Bankruptcy Code doesn’t define it.
There’s quite a bit at stake for debtors because the more inclusive they can make their households, the higher the family income level needed to preempt the means test. In New York bankruptcy, a single-earner household must earn less than $49,028 annually to avoid taking the means test, but a three-person household has to have an income below $71,989. That difference can make or break a chapter 7 case for some debtors. The issue of household inclusiveness is true for not only roommates but also cohabiting romantic partners who may have children from a prior relationship. Simply put, Americans arrange their lives in many ways.
As happens quite often when Congress doesn’t specify its terms, federal circuit courts have stepped in. Some have intuitively relied on the Census Bureau’s definition of “household,” which is sometimes referred to as the “heads on beds” approach. The relationship among the parties in the household doesn’t matter; rather, it’s whether their presence contributes to the household’s expenses. Roommates, unmarried partners, etc. fit this definition. An alternative definition requires debtors to financially support all the claimed household members, which would exclude roommates but not cohabitating partners.
For its part, the U.S. Trustee Program prefers the IRS’s definition to the Census Bureau’s:
“Household size” is the debtor, debtor’s spouse, and any dependents that the debtor could claim under IRS dependency tests. The USTP uses the same IRS test for the definition of both “household” and “family.” IRS Publication 501 [pdf] explains the IRS tests for “dependent.” (pdf)
The IRS approach is stricter than the Census Bureau’s, so it would exclude roommates.
One of the virtues of the heads-on-beds argument is that it parallels the Bankruptcy Code’s definition of median family income. Because that relies on the Census Bureau, there isn’t much of a reason to believe the Bankruptcy Code shouldn’t use it for defining households.
However, in New York no one uses the heads-on-beds definition, so debtors do not include roommates but they also don’t include parents if they’re living with them because parents are usually not dependents. If your case involves an unusual home arrangement that might jeopardize your ability to stay in chapter 7, then you should talk to an experienced New York bankruptcy lawyer before filing.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
