Who qualifies as a dependent for Ch 7 bankruptcy? Do IRS rules govern?

Asked about 1 year ago - Sacramento, CA

If an unrelated, married adult lives with friends who provide housing, utilities, and other necessities, does that person qualify as a dependent of the debtor for Ch 7? The person has income of approximately $8000 annually from retirement but is not full retirement age and is not yet collecting SS Retirement.

Additional information

They DO NOT pay rent and cannot be claimed as a dependent for IRS purposes, though they rely on the housing to live.

Attorney answers (4)

  1. Gary Ray Fraley

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    Answered . This area is unclear and often dependent on the Judge you happen to get. If the person is just a renter, than the income is counted but not the person.

    Always remember that just because something seems clear in bankruptcy it usually isn't. Alice in Wonderland has more to do with reality than the bankruptcy laws do.

    The general "rule of thumb" in the Eastern District of CA (Sacramento) is as stated by the other attorneys is "heads on beds." But NEVER rely on generalities as they almost always have exceptions. You will see what I mean below.

    Here is an example: If you were just renting out rooms the Judges are not going to go for that "heads on beds" approach. There needs to be some other link there such as a sharing of expenses and joint accounts. They have to be a part of the "household" and not just someone staying or renting at the residence. Otherwise, someone who did not qualify under the means test would simply move some friends in and file based on the head count. That would not go well with our Judges or the US Trustee's office.

    Do yourself a huge favor and see a quality bankruptcy attorney to find out what is going to work and what is not. Since your case would be filed in the Bankruptcy Court in Sacramento. I would recommend you find a quality bankruptcy attorney by looking at Avvo's attorney ratings for Sacramento attorneys.

    You could also look at the CA State bar website for a Certified Bankruptcy Law Specialist in Sacramento. Most attorneys will give you are free initial consultation.

    Another potential source for finding a good attorney would be through a search of the National Association of Consumer Bankruptcy Attorneys (NACBA.org) or a combination of all 3.

    Do NOT use an attorney that does anything other than bankruptcy law, foreclosure or debt negotiation. Part-time bankruptcy attorneys are, sadly, almost never knowledgeable enough to do the job right. This is a specialized field and you should go with an attorney who practices solely in that specialty. Never hire to veterinarian's assistant to do brain surgery on you and never hire a non-specialist to do a specialists job. Get the right attorney to begin with.

    I hope this helps you.

    This response does not constitute legal advice nor is the attorney providing this advice in any way liable for the... more
  2. Irina Lust

    Contributor Level 9

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    Answered . generally, there are two accepted lines of reasoning to determine household size. First one is how the Bureau of Census reports people, which that all of related and unrelated people who occupy a housing unit are part of the household. Second part of reasoning, can be found in In re Herbert, 405 B.R. 165 (Bankr. W.D. NC). The house size is determined by the number of people supported by the debtor and his applicable median of the family income should be calculated based on that household size. In re Jewell, 365 BR 796 (Bankr. SD Ohio 2007), the bankruptcy court looked to whether the person filing for bankruptcy financially supports an alleged household member rather than using the “heads on beds” approach.

    More importantly, the Office of the United States Trustee has announced that household means the Debtor, the Debtor’s spouse and those persons that Debtor could claim as a dependent for tax purposes.

    The Internal Revenue Code defines two types of dependents: qualifying children and qualifying relative. Qualified child means an individual who (i) bears a relationship to the taxpayer, (ii) has the same abode for more than half a year, (iii) is less than 19, 24 (if a student), or any age, if disabled, and (iv) has not provided more than half his own support. A qualifying relative is one who (i) bears a relationship with taxpayer, (ii) has less gross income than the exemption amount, (iii) receives from the taxpayer over half of the individual’s support, and (iv) is not a qualifying child. See IRC §152; IRS Publication 501

    You need to seek experienced counsel in your state who will provide better guidance and advise you on individual judges reasoning and approach as it may vary.

  3. Matthew Scott Berkus

    Contributor Level 20

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    Answered . The answer depends on what purpose you are trying to determine this person status.

    For schedule I, dependants should match IRS standards. For the means test, the question is household size which goes by Census rules, meaning "heads on beds."

  4. Christine B. Adams

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    Answered . You must disclose any income from members of the household, in some cases a person can be a "renter". I agree with Mathew, but you should actually have an attorney that is filing the case answer this question.

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