In re Skiles
MEMORANDUM OF OPINION
The issue in this case is how to calculate household size for the purpose of the means test. The facts involve recurring issues relating to children from multiple parent sets living part-time at different locations. For the reasons that follow, the court selects the “economic unit” test for household size and decides in favor of the chapter 13 bankruptcy trustee.
Brian Alan Skiles (“Debtor”) filed a voluntary chapter 13 petition and chapter 13 plan on June 14, 2013. On August 16, 2013, Debtor amended his original chapter 13 plan (“Amended Plan”). The Amended Plan proposes monthly plan payments of $1,270.00 for a period of thirty-six months. Toby L. Rosen, the chapter 13 trustee (“Trustee”), objected to Debtor’s Amended Plan because she calculates Debtor’s annualized current monthly income as above the applicable median family income for an Ohio household the same size as Debtor’s, hereinafter referred to as Debtor being “above median,” requiring Debtor to make chapter 13 plan payments for sixty months. Trustee and Debtor disagree on two main points, both of which may alter the amount of time Debtor is required to make chapter 13 plan payments: (1) Who should be included within Debtor’s calculation of “household” for the purpose of determining the applicable median household income in Ohio; and (2) Should Debtor’s live-in girlfriend’s gross income, net income, the amount she contributes to Debt- or for household expenditures, or some other amount be included within Debtor’s current monthly income (“CMI”)?
Although Trustee and Debtor disagree on the legal standard that should be used to calculate the size of Debtor’s “household,” the relevant facts are not in dispute. The following seven people have lived within Debtor’s home for at least a portion of the last six months: Debtor, his wife
Debtor’s calculation of CMI lists monthly gross wages of $4,647.43, monthly rental and other real property income of $1,225.00, and a $2,000.00 monthly contribution from Wife, for CMI of $7,872.42. When multiplied by twelve, Debtor’s annualized CMI is $94,469.16. The applicable median income for a seven person household within Ohio, as determined by the United States Census Bureau (“Census Bureau”), is $98,570.00, which is greater than Debtor’s annualized CMI. However, if Debtor’s household size is reduced to six members, the applicable median household income is $90,470.00, which is below Debt- or’s annualized CMI.
Law and Analysis
Section 1325 of the bankruptcy code (the “Code”) governs the confirmation requirements of a chapter 13 plan, including the length of time a chapter 13 debtor must make plan payments. This timeframe is known as the “applicable commitment period,” the length of which is:
(i) 3 years; or
(ii) not less than 5 years, if the current monthly income of the debtor and the debtor’s spouse combined, when multiplied by 12, is not less than ...
(II) in the case of a debtor in a household of 2, 3, or 4 individuals, the highest median family income of the applicable State for a family of the same number or fewer individuals; or
(III) in the case of a debtor in a household exceeding 4 individuals, the highest median family income of the applicable State for a family of 4 or fewer individuals, plus $675 per month for each individual in excess of 4; and
(B) may be less than 3 or 5 years, whichever is applicable under subpara-graph (A), but only if the plan providesfor payment in full of all allowed unsecured claims over a shorter period.
11 U.S.C. § 1325(b)(4). Therefore, if a debtor’s annualized CMI is above the median income for a household of the same size within the same state, the debtor must make plan payments for sixty months unless the creditors are paid in full at an earlier date. As Debtor’s Amended Plan proposes to pay 0% to unsecured creditors, his chapter 13 plan cannot be confirmed unless his annualized CMI is below median or he agrees to make plan payments for sixty months.
To determine if a debtor is above the applicable median, his CMI must be calculated. CMI, a term defined by the bankruptcy code, is “the average monthly income from all sources that the debtor receives (or in a joint case the debtor and the debtor’s spouse receive) without regard to whether such income is taxable income, derived during the 6-month period” starting with the month immediately preceding the commencement of the bankruptcy case. 11 U.S.C. § 101(10A). CMI is not limited to the debtor’s income, as it also “includes any amount paid by any entity other than the debtor (or in a joint case the debtor and the debtor’s spouse), on a regular basis for the household expenses of the debtor or the debtor’s dependents.” Id. § 101(10A)(B). Thus, by definition, income from a nondebtor that is not paid to the debtor for household expenses -will not be part of a debtor’s CMI. 8 Collier on Bankruptcy, ¶ 1325.11[4][d] (Alan N. Resniek & Henry J. Sommers eds., 16th ed. 2013).
Before a court can compare a debtor’s CMI to the applicable median, the size of a debtor’s “household” must be determined. While the term “household” is used within § 1325(b)(4), as well as other sections of the Code,
After the court has determined the size of a debtor’s “household,” it must then compare the debtor’s annualized CMI to the applicable median. In Ohio, median household income for a single person household is $42,814.00, a two person household is $53,218.00, a three person household is $60,960.00, a four person household is $74,270.00, and each household member above four results in an additional $8,100.00.
I. Determining the size of Debtor’s “Household”
As noted above, the word “household” is used throughout the Code but is not defined. When interpreting an undefined word, the court’s goal is to give rise to congressional intent, and the starting point is the existing statutory text. Lamie v. U.S. Tr.,
Courts, when applying the above rules of statutory construction, have reached three different definitions of “household:” (1) “heads-on-beds;” (2) “IRS dependent;” and (3) “economic unit.” Each definition often results in very different outcomes under the same factual circumstances. While the Sixth Circuit has not decided which definition to use, the Fourth Circuit has adopted the “economic unit” definition. Johnson,
a) The “Heads-on-Beds” Definition
The “heads-on-beds” definition has been adopted by at least one court within the Sixth Circuit, In re Smith,
Courts that have adopted the “heads-on-beds” definition claim to do so based on the rule of statutory construction requiring an undefined term to be given its plain meaning, unless such a meaning results in an absurd outcome. Hartford, Underwriters Ins. Co.,
Therefore, under the “heads-on-beds” definition, a debtor’s “household” “depends solely on the number of residents in a structure and is unconcerned with the presence of a familial or economic relationship between the individuals.” In re Robinson,
b) The “IRS Dependent” Definition
While no court within the Sixth Circuit has adopted the “IRS dependent” definition, it has been adopted by courts in other circuits. See e.g., In re Frye,
The courts adopting this definition believe that the use of the term “dependent” when determining a debtor’s expenses should be consistently applied to a debtor’s income and “household” size. See In re Napier,
Under the “IRS dependent” definition, a debtor’s “household” only includes those people he is able to claim as a dependent on his income tax return. The IRS has adopted a dependency test requiring an individual to satisfy each of the following requirements in order to qualify as an IRS tax dependent: “(1) a relationship test; (2) an age test; (3) a residency test; (4) a financial support test; (5) a joint return test; and (6) a special test for dependent children of more than one person.” In re Frye,
The “economic unit” definition has been applied at least twice in the Sixth Circuit. In re Fleck,
Courts adopting the “economic unit” definition do so because they believe it most closely aligns with the purpose of the Code, while also comporting with the statutory text. See generally Johnson,
Under the “economic unit” definition, “household” is defined as all individuals who act as a single economic unit with the debtor, or, in other words, “those the debt- or financially supports and those who financially support the debtor.” Johnson,
d) The “Economic Unit” Definition is Best
When evaluating § 1325(b), it becomes clear that the Code does not require a specific definition of “household.” Instead a court must decide on the appropriate definition based on some combination of the statutory language, congressional intent, and the Code’s overall purpose. See Johnson,
The “heads-on-beds” definition, at first glance, appears to align with the plain meaning of the statute. However, the term “household” has two very different dictionary meanings. Johnson,
The “IRS dependent” definition is also flawed, as it only allows a debtor to claim a person as a member of his “household” if the person can be claimed as a dependent on his tax return. Because the income and expense portions of §§ 1325(b) and 707(b) use different terms, it is logical to define the terms consistently. However, no portion of the Code expressly states that the IRS definition of dependent should be used. Johnson,
The “economic unit” definition best aligns with the purposes of the Code, comports with the statutory language, and gives the court the flexibility to adapt to a debtor’s unique living situations. See generally id. at 237. “A definition of ‘household’ that is ... tailored to reflect a debt-
e) Presumptions and Evidentiary Burdens When Using the Economic Unit Approach
In most situations, bankruptcy courts presume that the information a debtor provides in his bankruptcy schedules is accurate and the burden rests with the Trustee or other objecting party to come forward with evidence showing the falsity. See In re Jewell,
The nature of a debtor’s living situation justifies a departure from the normal presumption that a debtor’s bankruptcy schedules are accurate. The first reason justifying the departure is that who is within a debtor’s “economic unit” is not information a trustee is able to gather through traditional avenues. To obtain the most accurate information the trustee may need to camp out in a van down the street with binoculars. The court has no interest in encouraging a bankruptcy structure where debtor surveillance becomes the most effective way to counter a debtor’s “household” size. Second, the evidence of a debtor’s “household” size is uniquely in the hands of the debtor, making it significantly cheaper and easier for the debtor to prove “household” size, instead of the trustee disproving it. See Extrusion Painting, Inc. v. Awnings Unlimited, Inc.,
Based on the above, the court adopts the following rebuttable presumption: If an individual is listed as a dependent on the debtor or the debtor’s non-filing spouse’s most recent income tax return, that individual is presumed to be a member of the debtor’s bankruptcy “household.” Either party can successfully rebut the presumption by providing documentation or other evidence. This is subject to further countervailing evidence. If an individual is not listed as a dependent on the debtor or debtor’s non-filing spouse’s most recent tax return, that individual is rebuttably presumed to not be a part of the debtor’s “household.” The party desiring a different conclusion has the initial burden of providing evidence showing the individual satisfies the “economic unit” definition. If that party can provide satisfactory evidence, the burden shifts to the opposing party to provide countervailing evidence. While the determination of whether an individual is within the debt- or’s “economic unit” should be determined on a case-by-case basis after evaluating all of the evidence, certain information may be especially helpful. A domestic relations order, such as a separation agreement or child custody order, may distribute a child’s care in a manner that may assist the court in determining if a child is part of a debtor’s “economic unit.” However, the court should be cognizant of a domestic agreement that attempts to “even things out” and may not represent the economic realities of the parties. An official document completed before the debt- or’s contemplation of bankruptcy, such as an application for a residential loan or governmental assistance, which includes the debtor’s household size may be relevant. Other information, such as receipts, bank statements, or credit card statements which either show or do not show costs consistent with caring for another may also be beneficial. However, a bald statement that an individual either is or is not part of the debtor’s “household,” without more, is insufficient when a good faith challenge is asserted.
The court also believes that an adult capable of supporting himself, but who is not working without reasonable cause and lives off the generosity of the debtor, usually should be excluded from the debtor’s “household,” even if the adult would otherwise satisfy the requirements of the “economic unit” definition. A contrary rule would result in a debtor’s creditors subsidizing the adult’s decision not to work. There are obvious, appropriate ex
f) Application of the Presumptions and “Economic Unit” Definition
In the current case, Debtor claims seven people in his bankruptcy household: Debtor, Wife, Debtor’s two children, and Wife’s three children. Debtor claimed one of his two children on his 2012 federal income tax return. Wife claimed one of her three children on her 2012 federal income tax return. Because Debtor is divorced from his ex-wife, his children spend eight out of every fourteen days with Debtor and the remainder with his ex-wife. Debtor believes that his relationship with Wife and their five children represent a single economic unit. Trustee does not voice her opinion of Debtor’s “household” size under the “economic unit” definition.
The court first notes that Debtor’s 2012 federal income tax return creates a rebut-table presumption that one of his children is in his bankruptcy “household.” Trustee provides no evidence to counter the presumption. However, Debtor’s bankruptcy petition claims both of his children within his “household.” In support of this position, Debtor’s brief notes that both of his children live with him every Monday, Wednesday, and Friday, while alternating weekends with his ex-wife. Debtor hopes that his children’s living arrangements will convince the court that both children are part of his “economic unit.” However, Debtor does not provide any evidence of his children’s living arrangements except for the statement in his brief. Debtor’s bald statement, without any corroborating evidence, is insufficient to rebut the presumption that a child who is not claimed on a debtor’s most recent income tax return is not a part of the debtor’s “household.” Wife claims one child on her 2012 income tax return, creating a rebuttable presumption that the child is within Debt- or’s “household.” Trustee provides no evidence to counter the presumption. Debtor provides no evidence asserting that Wife’s other two children are part of his “household,” except for bare statements in his brief and bankruptcy petition. Statements, without more, are insufficient.
After accounting for the presumptions, Debtor’s “household” consists of four members: Debtor, Wife, one of Debtor’s children, and one of Wife’s children. The applicable median for a four person household in Ohio is $74,270.00. Debtor calculates his annualized CMI, which includes a $2,000.00 monthly contribution from Wife, at $94,469.16. Debtor’s annualized CMI is above the applicable median. Debtor must make chapter 13 plan payments for sixty months unless his debts are paid in full at an earlier time. However, when Debtor and Trustee compiled their legal arguments and evidence in support of their respective positions, both were unaware of the court’s above adopted presumptions. As will be illustrated below, even assuming that Debtor provided evidence sufficient to rebut the presumptions and Trustee did not produce enough countervailing evidence, the ultimate outcome of this opinion does not change. For the ensuing analysis, the court assumes Debtor has rebutted the presumption that his and Wife’s children that were unclaimed on their most recent income tax return are not within their bankruptcy “household.”
When determining if an individual is part of the debtor’s “economic unit,” courts have utilized a number of factors:
1) the degree of financial support provided to the individual by the debtor;
2) the degree of financial support provided to the debtor by the individual;
3) the extent to which the individual and the debtor share income and expenses;
4) the extent to which there is joint ownership of property;
5) the extent to which there are joint liabilities;
6) the extent to which assets owned by the debtor or the individual are shared, regardless of title; and
7) any other type of financial intermingling or interdependency between the debtor and the individual.
In re Morrison,
This court agrees with the reasoning of In re Morrison, In re Herbert, and In re Jewell. Debtor and Wife live in the same dwelling. Each contributes economic resources to the maintenance and support of each other, as well as the children.
However, the problem of how to count Debtor’s children remains unresolved. Debtor’s children, like many split households, spend some of their time with one parent, and the remainder with the other. This presents a dilemma, as the court must determine if a “part-time” child should count as one member of the debt- or’s “household,” a fractional or “part-time” member, or no member at all. The court adopts the “part-time” approach, holding that a child that lives with the debtor some of the time, but also spends time living with another person, should be counted based on the percentage of time the child spends with the debtor. This “part time” approach approximates a debt- or’s actual costs. Johnson,
Even though the court adopts the “part time” approach, it does so acknowledging its flaws. Some of a debtor’s expenses are fixed and will not change based on the amount of time a child stays with the debtor (such as rent for a dwelling with the appropriate number of bedrooms), while other expenses are variable (such as food and clothing). In re Robinson,
In the current case, Trustee did not object to Debtor claiming one child within his “household.” The argument is really about the other- — the child Debtor did not claim on his 2012 income tax return. However, both children must be analyzed collectively to reach an accurate result under the “part time” approach. Debtor’s two children live with him every Monday, Wednesday, and Friday, while alternating weekends with his ex-wife. The custody arrangement results in Debtor’s children living with him eight out of every fourteen days. Applying the fractional approach, Debtor’s two children spend approximately the same amount of time with Debtor as one “full-time” child. For purposes of Debtor’s bankruptcy “household,” Debtor’s two children count as one member. The court in In re Robinson,
Based on Debtor’s lack of supporting evidence, Debtor has failed to rebut the court’s presumptions and is only able to claim those children listed as dependents on Debtor and Wife’s most recent income tax returns. Trustee has not provided any evidence to counter the dependents
The court needs to note for the casual reader that this living arrangement is not unusual. It has become impossible to describe a range of typical living arrangements. Part-time living arrangements among individuals running a gamut of blood and non-blood relationships have multiplied explosively. It is beyond the ken of the courts to reduce these countless variations to a number based upon a tested algorithm. These limitless living arrangements have profound, splintering economic consequences. Just as an example, Debt- or’s schedules reflect that Debtor jointly owns a motor vehicle with a man who is the father of one or two (it is unclear) of Wife’s children. It is not possible to ascribe traditional numbers to these types of situations. We should not kid one another. We are just doing the best we can. The search for a one-size-flts-all numerical straitjacket test is at best imprecise.
Conclusion
The court adopts the “economic unit” definition, concluding that Debtor’s “household” contains four members. Because Debtor’s own calculation of his annualized CMI is above the applicable median, Debtor’s applicable commitment period must be sixty months unless his creditors are paid in full at an earlier date. Debt- or’s plan does not propose to pay his creditors in full. Therefore, because Debtor’s plan only proposes payments for thirty-six months, instead of the required sixty months, confirmation of Debtor’s chapter 13 plan is DENIED.
An order will be entered simultaneously with this opinion.
Notes
. At the time Debtor filed his bankruptcy petition Debtor and Wife were living together, but were not married. On August 2, 2013, Debt- or and Wife married.
. Census Bureau Median Family Income by Family Size, U.S. Department of Just. (Sept. 27, 2013), http://www.justice.gov/ust/eo/ bapcpa/2013 050 l/bci_data/median_income_ table.htm (Attached as Ex. A).
. See, e.g., 11 U.S.C. § 101(8) (defining “consumer debt” as "debt incurred by an individual primarily for a personal, family, or household purpose”) (emphasis added); id. § 522(d)(3) (allowing a debtor to take an exemption for “household furnishings, household goods, wearing apparel, appliances, books, animals, crops, or musical instruments, that are held primarily for the personal, a family, or household use of the debtor or a dependent of the debtor.”) (emphasis added); id. § 707(b)(2)(A)(ii)(II) (allowing "the continuation of actual expenses paid by the debtor that are reasonable and necessary for care and support of an elderly, chronically ill, or disabled household member or member of the debtor's immediate family” within the means test calculation) (emphasis added).
. Census Bureau, IRS Data and Administrative Expense Multiplies, U.S. Department of Just. (Aug. 5, 2013), http://www.justice.gov/ust/eo/ bapcpa/20130501/meanstesting.htm (Attached as Ex. B).
. Census Bureau Median Family Income by Family Size, U.S. Department of Just. (Sept. 27, 2013), http://www.justice.gov/ust/eo/ bapcpa/20131115/bci_data/median_income_ table.htm (Attached as Ex. A).
. Black’s defines “family” as: (1) "[a] group of persons connected by blood, by affinity, or by law;” (2) “[a] group consisting of parents and their children;” or (3) “[a] group of persons who live together and have a shared commitment to a domestic relationship.” Black's Law Dictionary (¡79 (9th ed. 2009).
. Current Population Survey (CPS)-Definitions, U.S. Census Bureau, http://www. census.gov/cps/abou1/cpsdef.html (last updated Oct. 29, 2013) (Attached as Ex. C).
. Section 707(b)(2)(A)(ii)(II) states:
In addition, the debtor’s monthly expenses may include, if applicable, the continuation of actual expenses paid by the debtor that are reasonable and necessary for care and support of an elderly, chronically ill, or disabled household member or member of the debtor’s immediate family (including parents, grandparents, siblings, children, and grandchildren of the debtor, the dependents of the debtor, and the spouse of the debtor in a joint case who is not a dependent) and who is unable to pay for such reasonable and necessary expenses,
(emphasis added).
. It is true that the Census Bureau (or often times a bank before authorizing a loan) may inquire into who lives with the debtor. Any information gathered may not be up-to-date, as data gathering may be sporadic or rarely updated. Additionally, unlike a bank or credit card statement which provides very accurate data from which further analysis is often not needed, a document stating the size of a debtor’s household will require additional analysis and information before the trustee can determine if the people listed within the document are part of the debtor's "economic unit."
. Based on Wife's pay stubs, her average monthly gross income is $3,868.73. After subtracting taxes and other payroll expenses, Wife’s average monthly net income is $2,568.02. Debtor includes a monthly contribution from Wife of $2,000.00 in his CMI.
. If, for example, the court calculated Debt- or’s “household” size at seven, Debtor's annualized CMI would have been below median. At that point, the court would have analyzed the amount of Wife's income Debtor should include in his annualized CMI, as any increase may cause Debtor to move from below to above median.