Household size matters in Wilmington bankruptcy
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When you’re deep in debt and looking for a way out, bankruptcy is one option to consider. With Wilmington bankruptcy, there are two options open to most North Carolina consumers – Chapter 7 and Chapter 13. Chapter 7 offers greater debt relief and faster, but not everyone will qualify. The Means Test is important to determine if you can file Chapter 7 and household size is a critical component, but what does the term “household size” mean?
Household Size and the Means Test
The purpose of the Means Test is to determine eligibility for filing Chapter 7. When it comes to Chapter 13, most wage-earning Wilmington residents should qualify. Chapter 7, however, comes with more stringent requirements because its debt relief is more sweeping for consumers and more painful for your creditors who will lose out. It’s important to note that you can earn a good wage and still qualify for Chapter 7 bankruptcy if you pass the Means Test and household size is critical.
The Means Test looks at your monthly gross income minus qualified deductions and living expenses versus the payments to service your debt. If the scales tip in your favor, you can file Chapter 7. Household size is critical because the greater the number of qualified people living under your roof, the higher your expenses and deductions can be. The more people in your house means more cost, and that can be the difference between qualifying for Chapter 7 or having to go with Chapter 13 instead.
What Is “Household Size”?
There are three approaches bankruptcy courts take to determine the size of your household for Means Test purposes in Wilmington bankruptcy. Off the bat, you count as one person. If you’re married and live under the same roof, that’s a second person. If you have children that live with you full-time, you will count those as well. With divorce and legal separation, those numbers can get a little more complicated. But what about other people that dwell with you? Here is how the court may decide.
#1 Financial dependency – This approach allows you to count anyone living under your roof that is financially dependent on you. For instance, if you have a sibling with special needs that lives with you and that you support, they would count. Or if your parent lives with you that you support, they should count. However, if you have a deadbeat roommate that doesn’t pay bills on time, they would not count.
#2 Heads in beds – This approach was used in a 2007 bankruptcy case in Minnesota. The bankruptcy filer successfully argued that everyone who lives in the home or apartment, no matter their financial status counted for household size in bankruptcy. This argument was made on the premise that the US Census Bureau defines household size simply as all the people that live in a home.
#3 Economic unit – This newer approach considers your household for Wilmington bankruptcy purposes as all those living in the house that operates as an economic unit. This would include you, your spouse, and your children. But if your parent lived with you but paid their own way, they would not count nor would a roommate. The economic unit theory aligns closely with the financial dependency approach.
How Much Income for Household Size Qualifies You for Chapter 7?
If you exceed the Median Income for your household size, that does not mean you won’t qualify for Wilmington Chapter 7 bankruptcy relief. What it means is that your bankruptcy attorney must crunch the numbers of your income, deductions, and expenses to see if you qualify. But if you meet these thresholds, you should automatically qualify for Chapter 7 bankruptcy.
- If your household is just you and you make $42,946 or less, you qualify.
- If your household is just you and one other person, $55,722 or less in income qualifies you.
- If your household is you and two others, you can qualify if you earn $64,521 or less.
- If your household size is four, and you make $72,830 or less, you should qualify.
- If your household size is greater than four, you take the base of $72,830 and add $8,400 for each additional person over four to see the income threshold to qualify for Chapter 7.
Because every financial circumstance is unique, your best approach is to consult a reputable and experienced Wilmington bankruptcy attorney to discuss your debt dilemma. They can explain the benefits of Chapter 7 and Chapter 13 and advise you which approach may be best for you.
To find out more, contact the Law Offices of John T. Orcutt. Call +1-919-646-2654 today to schedule a free Wilmington bankruptcy consultation at one of our locations in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.