The Means Test: "Household" Size and Contributions

On June 20, 2007 the decision in In re Ellinger, ___ B.R. ___, 2007 WL 1976750 (Bkrtcy.D.Minn.)(Kressel, J.) was issued. One of the issues dealt with by the court was what constitutes a “household” as the term is used in section 707(b)(6). The court explained that the bankruptcy code does not define what constitutes a household. Based on section 101(39A)(A)’s definition of “median family income” which is calculated and reported by the Bureau of Census, the court found that the Census Bureau’s definition of “household” provides the most appropriate definition of household for use in the means test. The Census Bureau defines “household” as “all of the people, related and unrelated, who occupy a housing unit…. A housing unit is a house, apartment, group of rooms or single room that is intended for occupancy as a separate living quarters.” The court further noted that Congress used the word “household” and not “family” and did not intend to limit household size to only household members related by blood, marriage or adoption.

The Court declined to adopt the U.S. Trustee’s argument to use the Internal Revenue Manuel’s (“IRM”) definition of “household”. The IRM does not define “household” but indicates that the number of persons allowed under the national standard expenses should generally be the same as the number of dependents on the taxpayer’s latest tax return. The Court noted that the IRM’s definition applies to the calculation of the number of persons allowed expenses after the debtor is already found to have above median income but that it is not used to decide the threshold question of whether a debtor has above median income for his household size.

The Court next addressed the issue of the extent that the non-debtor household member’s contributions must be included in the debtor’s CMI per section 101(10A). The Court held that the contribution must be included in the debtor’s CMI only to the extent that the contributions were used to support the debtor or the debtor’s dependents and that the remainder of the contributions are excluded. The court noted that this particular non-debtor household member was not a dependent of the debtor and that the statute does not require the inclusion of income from a third-party that is used to support a non-dependent. Section 707(b)(7)(A) though does require the inclusion of the debtor’s spouse for its calculation. Accordingly, the Court did not include the non-debtor’s entire contribution in the calculation of the debtor’s CMI. The portion of the contribution used to pay the non-debtor’s share of the household expenses was not included as it was not used to support the debtor or the debtor’s dependents.

The court also noted that the means test provides a snapshot of the debtor’s finances and is not meant to be continually updated as the debtor’s circumstances change. Therefore, the fact that the non-debtor moved out after the debtor filed her petition was irrelevant to the means test and the determination of the household size.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983

Munger Follows Sorrell, Unemployment Compensation Not Part of CMI

Since the drafting of the Means Test Form in 2005, it has been debated whether unemployment compensation is excluded from CMI as a “benefit received under the Social Security Act.” The Means Test Form took no position on the issue. Noteably, Judge Wedoff argued that unemployment compensation was not excluded from CMI. Eugene R. Wedoff, Means Testing in the New Section 707(b), 79 Am.Bankr.L.J.231,247 (Spring 2005). On the other hand, Collier on Bankruptcy in its analysis of section 101(10A) states that unemployment benefits are provided for under the Social Security Act and are thereby excluded from CMI. Collier on Bankruptcy 101-81 (Alan N. Resnick & Henry J. Sommer eds., 2007).

The Court in In re Munger, 2007 WL 1810701 (Bkrtcy.D.Mass.)(Rosenthal, J.) held that unemployment compensation is so excluded from CMI. The United States Trustee (the “UST”) argued that unemployment compensation should be included in CMI but did not apparently file a supplemental brief on the issue. The debtors argued that unemployment compensation constitutes a “benefit received under the Social Security Act” and should be excluded from the CMI under 11 U.S.C. Section 101(10A)(B) which “excludes benefits received under the Social Security Act..” The Debtors relied on In re Sorrell, 359 B.R. 167 (Bankr.S.D.Ohio 2007) in which Judge Waldron held that unemployment compensation is excluded from CMI. Sorrell is apparently the only reported decision on point. Judge Waldron based his decision based on the statutory construction of section 101(10A) and the plain meaning rule. The Sorrell court rejected the UST’s argument that unemployment compensation is a nonqualifying “indirect payment” under the Social Security Act as each state administers the payments to eligible individuals. The Court concluded that the bankruptcy code does not speak of “payments” direct, indirect, or otherwise, but instead contains the unambiguously broader term “benefits received under the Social Security Act.” Sorrell at 181. The word “benefits” does not draw a distinction between unemployment compensation and other benefits. The Court further stated that when Congress intended to limit the language of a statute, that it did so such as in 522(d)(10)(A). Finally, the Sorrell court looked to the purpose of the Social Security Act which it found included replacement of wages to the unemployed.

Jordan E. Bublick, Attorney at Law, Practice Limited to Bankruptcy Law, Board Certified Specialist in Consumer Bankruptcy Law (American Board of Certification), Member of the Florida Bar since 1983