Blogs

One of these days I’m going to write a post on how shitty we treat married couples in this county.  From a financial perspective, is it better to be married or to shack up? I’m going to write a list. There are some legal benefits to being married, but from what I see its more of a financial burden.
Maybe I’m just getting old and cranky, but it seems like you can avoid a lot of financial regulations and limits by just living together.
Need an example?  Well, if you are married you are responsible for the medical debts of your spouse, but not if you just live together.  In fact, some couples actually divorce just to avoid the medical debt that comes with being married. How is this fair? Where are the “Family Values” folks when it comes to correcting this inequity?
The Bankruptcy Reform Act of 2005 was designed to address this issue.  It was designed to require a debtor to report all “household income” received in the past six months, regardless of whether a debtor was married or not.
I can read a case and smell unreported income, and that really ticks me off. Why? Because I don’t do that. I list all household income. I question debtors carefully and report the income they are inclined to hide.
And because I take this job seriously and report all household income, this forces some clients into 5-year Chapter 13 repayment plans instead of Chapter 7. It ticks me off when I see an attorney hide income and get away with it but my clients are forced into repayment plans.  What really gets me is that it is so obvious what they are doing. All the clues are right there in the bankruptcy petition.  So how do they get away with this?
The first trick to getting a higher-income debtor into chapter 7 is to misrepresent the size of the household.  The bigger the household the more a debtor’s income can be in chapter 7.  And since the bankruptcy code does not define household size, courts have used three approaches:

1. Heads in Beds–Household size equals the number of people who live in the home.
2. IRS Dependency Test–Household size is equal the debtor the dependents listed on a tax return.
3. Single Economic Unit — A wide variety of factors are reviewed to determine household size.

The best approach is the Single Economic Unit test. The courts weigh the facts of each case.  It’s a continuum.  Do the persons in a home function more as a single unit or as separate units?

• Married with kids living together: Single Economic Unit
• Not married but living together, have kids together, use joint bank accounts, have joint debts and share toothbrushes: Single Economic Unit
• Met last week at the bar, stayed the night and just haven’t left: Separate units.
• Not married, living together, no kids in common, separate bank accounts, no joint debts: Separate units.
• Not married, living together, no kids in common, joint bank accounts, joint assets:  Um . . . could go either way.

If the individuals living in the home form a Single Economic Unit, they all count for the household size. But if they keep everything separate and just share the same housing unit (i.e., like college roommates), they do not count towards the household size.
So, this is the game bankruptcy attorneys play.  If a debtor’s income is over the median income level, we look for additional household members.  Can we add the girlfriend? Are the kids living with the debtor enough of the time to add one or more of them to the household size? Do parents qualify as part of the household? The bigger the household size the higher a debtor’s income may be when qualifying for Chapter 7.  So, the attorney looks for bodies.
When I see “contribution from roommate” on the income statement and then I see minor kids listed in the household size, my radar goes off. Is the roommate the parent of those kids? If the “roommate” is actually a parent of the debtor’s children, shouldn’t all the gross income of the roommate be listed and not just the contribution?
When I see roommates listed as part of the household size but the income of the roommate is not listed or is minimized as a “contribution” to household income, I become suspicious that income is being hidden.
A game is being played by the debtor’s attorney.  Household sizes are being expanded to include others but income of the debtor’s “roommate” is minimized.  This is how you qualify higher-income debtors for Chapter 7: Increase the household size and limit the income of roommates to mere contributions.
Image courtesy of Flickr and Mike Prince

 Forbes has an informative article about Biden’s Student Loan Forgiveness Application Is Here — 5 Tips Before You SubmitThe article can be found at https://www.forbes.com/sites/adamminsky/2022/10/15/bidens-student-loan-f...
JIm Shenwick, Esq 212 541 6224 [email protected]

 Bills have been introduced in Congress to amend the bankruptcy laws. An excellent article discussing the proposed law titled "Consumer Bankruptcy Overhaul Envisioned in New Bill: Explained" can be found at https://news.bloomberglaw.com/bankruptcy-law/consumer-bankruptcy-overhau...
James Shenwick, Esq [email protected] 212-541-6224

WUFT is reporting that virtually all PPP loans have been forgiven with limited scrutiny. The article can be found at https://www.wuft.org/nation-world/2022/10/12/virtually-all-ppp-loans-hav....
Jim Shenwick, Esq 212-541-6224 [email protected]