The Modern Family Debacle: Bankruptcy Judges Decide That Some of the Debtors’ Loved Ones Do Not Count as Household Members

Abstract

The United States Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) with the express purpose of limiting the number of consumer debtors eligible to file a Chapter 7 case, which typically lasts only a few months and results in the elimination of the debtor’s unsecured debts. Under BAPCPA, bankruptcy courts must determine the size of a consumer’s household in order to complete two calculations necessary to determine whether the consumer is eligible for a Chapter 7 or whether she is required to file a Chapter 13 case and commit to a three-to-five-year debt repayment plan.

Because Congress failed to define the term "household," courts have developed numerous approaches to determine household size, and they are often applied unfairly to debtors with non-traditional families. For example, after filing a Chapter 13 bankruptcy case, a debtor learned that her five children - two biological children and three stepchildren - counted as only 2.59 members of her household - even though all five children live with her at least half the year and she cared for them the same. With such a decrease in her household size, the debtor’s allowed standardized expenses were much lower - based on a household including only 2.59 children, rounded up to three persons - and thereby caused her disposable income to substantially increase. Financially-distressed debtors in this position are then required to pay substantially more to unsecured creditors through a repayment plan and, as a result, suffer a financial penalty imposed by bankruptcy courts. The fractionalization of a debtor’s underage children is just one illustration of the modern family debacle created by some bankruptcy courts as they struggle to decide which of the debtor’s loved ones counts as a household member.

In keeping with a primary objective of BAPCPA - removing discretion from judges by creating objective standards - this Article proposes that Congress amend BAPCPA to define the term “household” in a manner that creates presumptions in favor of a debtor counting typical household occupants (e.g., under-age children who are part-time residents) as full household members.

Keywords: BAPCPA, Bankruptcy Code, Bankruptcy Law, Means Test, Disposable Income Test, debtor, creditor, 7th circuit court, Tax dependent, household, household size, Census Bureau, Economic Unit Test, § 707(b), Fraction, family, loved ones, Section 1325(b), IRS, Internal Revenue Service, IRC, Abuse,

JEL Classification: K35, K34