Nontraditional Households Can Complicate Chapter 13 Analyses

Old television shows and films often portrayed American homes as consisting only of parents and their minor children. In truth, there have always been households that included grandparents, aunts, uncles, stepchildren and others who were not part of the traditional nuclear family. Now, more attention is given to the “modern family” that has countless variants.

If you’ve fallen behind on some of your financial obligations, but are earning a steady income, you might have thought about a repayment plan established through a Chapter 13 bankruptcy. This option is particularly attractive to homeowners who want to hold on to their residence. During the Chapter 13 process, the filer proposes a plan by which they can pay debts over a period of three to five years with the disposable income they have after paying recurring expenses.

Whether a plan is acceptable to the court depends on several factors, including household size. Naturally, the regular expenses would be higher for larger families. However, nontraditional households can trigger confusion over the appropriate expense level. 

A California Law Review article highlights what author Creola Johnson calls the “Modern Family debacle.” Johnson cites a case where a married woman had two children of her own who spent slightly more than half in her residence. Her husband had three children of his own, who lived with the couple for approximately half the year. Frequently, there were seven people staying in the household, functioning as a family unit. 

The court used the fractional economic unit approach, which only counts children based on the percentage of time they stay with the filing party. Given the amount of time her children and stepchildren spent in her residence, her repayment plan was considered as if she had 2.59 children. This was rounded up to three. That smaller household size reduced her standardized expense deductions and inflated her projected disposable income—forcing a higher payment to creditors.

Other approaches to assessing household size include only counting dependents listed on a filer’s tax return and counting anyone who lives on the premises. Each method has its own pros and cons. For example, a relative or roommate might be counted even if the filer provides no financial support to them. 

Choosing the right framework for defining a household can be critical for both Chapter 7 and Chapter 13 proceedings. Jeff Field & Associates offers insightful counsel to Georgia residents on all types of bankruptcy matters, including household calculations. Please call 404-381-1278 or contact us online to schedule a consultation. Our offices are in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Decatur.