Economic Unit Approach to determining household size.
Today on Trustee John Pringle’s calendar, the United States Trustee’s representative appeared and asked a debtor about her household size as noted on the means test. This reminded me of the Economic Unit approach that courts sometimes take to determine how many people actually live in a house.
Chapter 13 Trustee John P. Gustafson in Ohio writes about the Economic Unit test:
“The third method that bankruptcy courts have utilized to determine the size of a debtor’s household is the economic unit approach. This methodology measures the size of the debtor’s household by the number of individuals in the home who act as a single economic unit. As the court in In re Morrison explained:
[A] household will include individuals who are financially dependent on a debtor, individuals who financially support a debtor, and individuals whose income or expenses are inter-mingled or interdependent with a debtor.
In re Morrison, 443 B.R. 378, 2011 Bankr. LEXIS 103, 2011 WL 65737, at *6 (Bankr. M.D.N.C. January 10, 2011). “In its breadth, the third approach falls between the first two approaches.” Id. This approach aims to more accurately portray the economic situation of a given debtor, whether that leads to increasing or decreasing the size of the debtor’s “household” for purposes of the form B22C calculations.
For instance, the court in In re Herbert permitted a debtor to claim a household size of eleven because for many years the debtor had financially supported his girlfriend, their daughter, and the girlfriend’s eight other children. In re Herbert, 405 B.R. 165, 170 (Bankr. W.D.N.C. 2008). The court found that rather than being “contrived or concocted for the purpose of this bankruptcy filing,” the financial support of these ten other individuals was “simply the fact of this debtor’s life.” Id. The court in Herbert criticized both the “heads on beds” approach and the IRS dependents approach for failing to accurately characterize family fiscal structures:
While this court agrees with the Ellringer court to the extent it recognizes that there will be instances in which unrelated, non- dependent individuals should be treated as part of a household, the “heads on bed” approach adopted by that court is too broad because it includes anybody who may be residing under the debtor’s roof without regard to their financial contributions to the household or the monetary support they may be receiving from the debtor. . . . On the other hand, the court declines to adopt the standards of the Internal Revenue Manual for purposes of determining household size because they do not account for the situation in which a debtor may be supporting an individual without declaring that person as a dependent on his tax return.”
In determining the number of members of the household for the means test, remember the Economic Unit argument.