Means Test and Partial People

“The common meaning of the words ‘individual’ and ‘dependent’ does not include partial people.”

There have been no federal circuit court decisions on how to determine “household size” in the means test, until now. The above self-evident quote is from the dissent. (An explanation of the means test can be seen at my website by clicking the prior link).

The means test created by bankruptcy reform has spawned countless cases with conflicting interpretations. The confusing and inartfully drafted statute has led to cases going to the United States Supreme Court, as has been discussed in prior posts.

But I would never have believed that the statute would be interpreted to consider partial people, or fractionalized dependents.

The starting point in the means test is to determine household size. This is necessary to determine if the debtor is over median income, and if so, what are the allowed expenses that could be deducted, and if in chapter 13, whether the debtor must be in a five year plan because the “applicable commitment period” is five years.

The United States Trustee and some courts have looked at the issue of how many dependents are eligible to be listed as a dependent on an income tax return. A second view is “heads on beds”, the number who actually live in the same dwelling. A third view and what I have considered the most appropriate is the economic unit approach. Thus 2 roommates just sharing rent are really 2 households of 1, but a husband who files with a wife and wife’s son from a prior marriage is a household of 3.

On July 11, 2012, Johnson v Zimmer, 2012 US App Lexis 14153(4th Cir. 2012)(Case No 11-2034) affirmed the bankruptcy court’s treatment of the means test in a Chapter 13. A creditor had objected to the the debtor’s determination of household size. Both the creditor and the debtor rejected the tax dependent approach, and the Court agreed. The debtor contended heads on beds should be applied, but the Court disagreed. The Creditor argued that an economic unit was the appropriate method of determining household size. The 4th Circuit held that the economic unit approach was appropriate and affirmed the bankruptcy court. The decision was a 2-1 decision, but even the dissent agreed with the economic unit approach.

But the facts and application are what are really interesting and perhaps distressing for practitioners. The debtor had joint custody of her two sons. Pursuant to the divorce decree, she had custody for 204 days. Meanwhile, her husband had custody of his three children, the debtor’s step-children, for 180 days. Sounds to me an economic unit and household of 7, and for now I would continue this approach in a Fort Lauderdale bankruptcy. The bankruptcy court made computations to determine that the debtor had 2.59 dependents, which were rounded to 3. (household of 5)

Determining the fractional portion of a person would open the proverbial can of worms for the debtor’s attorney, trustees and the courts.


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