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Docket Number

No. 08-10232.

Advocates

Edward C. Hay, Jr., Pitts, Hay Hugenschmidt, P.A., Asheville, NC, for Debtor.

Acts

Bankruptcy — Liquidation — Officers And Administration — Dismissal Of A Case Or Conversion To A Case Under Chapter 11 Or 13

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Smart Summary

Case Summary: In re Thomas C. Herbert, No. 08-10232 (Bankr. W.D.N.C. Jul. 30, 2008)

Factual and Procedural Background

The debtor filed a Chapter 7 petition on March 28, 2008. He resides with his girlfriend and nine children: one child whom the debtor identifies as his biological daughter with the girlfriend, and eight children who are the girlfriend's children from a previous relationship. The parties have lived together for several years. The debtor provided ongoing support to his girlfriend and her children because the children's biological father is incarcerated. The debtor has claimed all nine children as dependents on his tax returns and has attempted to adopt the eight children, but their father would not consent to the adoption.

On his bankruptcy schedules the debtor lists all nine children as dependents (one as his daughter and eight as "stepchildren" on Schedule I, though the court notes the "stepchild" label is not legally accurate because the debtor and his girlfriend are not married). On Form B22A the debtor claimed a household size of 11 (the debtor, his girlfriend, and the nine children) on line 14(b) and reported an applicable median family income of $111,469.00 for that household size. He listed Current Monthly Income for § 707(b)(7) of $9,125.00 (which includes $1,600.00 per month in food stamps his girlfriend receives), yielding an Annualized Current Monthly Income of $109,500.00 — less than the stated applicable median family income for a household size of 11 — so he was not required to complete the remainder of Form B22A.

The Bankruptcy Administrator (BA) moved to dismiss the debtor's case under 11 U.S.C. § 707(b) as an abuse of Chapter 7. The BA contended the debtor was entitled to claim a household size of only 2 (the debtor and his daughter), which would produce an applicable median family income of $49,259.00; under that measure the debtor would appear to have sufficient disposable income to pay unsecured creditors over 60 months. The court considered the BA's motion and the parties' filings and arguments.

Legal Issues Presented

What is the appropriate definition of the phrase "household size" as used on Form B22A?
Under that definition, may the debtor properly claim a household size of 11 for purposes of calculating applicable median family income on Form B22A?

Arguments of the Parties

Bankruptcy Administrator's Arguments

The BA argued the debtor is entitled to claim a household size of only 2 (the debtor and his biological daughter), not 11.
Using a household size of 2, the applicable median family income would be $49,259.00 for North Carolina, which would indicate the debtor has sufficient disposable income such that dismissal under 11 U.S.C. § 707(b) as an abuse of Chapter 7 would be appropriate.

Debtor's Position

The debtor asserted a household size of 11 on Form B22A (the debtor, his girlfriend, and the nine children) and provided facts showing long-term support of the girlfriend and her children, claimed the children as dependents on tax returns, and attempted adoption of the eight non-biological children.
The debtor's reported Annualized Current Monthly Income based on a household size of 11 is less than the applicable median family income, obviating further computation under Form B22A.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
In re Plumb, 373 B.R. 429 (Bankr. W.D.N.C. 2007)	Considered whether "household" and "family" sizes are synonymous on Form B22C and analyzed family size for certain lines of Form B22C; observed § 707(b)(2)(A)(ii)(II) uses "household member" and "family member" alternatively.	This court noted that Plumb did not resolve the definition of household size on the means test because the result was the same regardless of the household size there; Plumb did hold family size and household size need not be synonymous and excluded a fiancee from family size in that case. The opinion relies on Plumb for the proposition that family size and household size can be distinct concepts.
In re Ellringer, 370 B.R. 905 (Bankr. D. Minn. 2007)	Adopted the Census Bureau's definition of "household" (the "heads on beds" approach) for means-test household size, since median family income is calculated and reported by the Census Bureau under § 101(39A)(A).	The court discussed Ellringer's rationale and acknowledged it recognizes instances when unrelated, non-dependent individuals should be counted. However, this court declined to adopt Ellringer's "heads on beds" approach wholesale, finding it too broad because it ignores financial support and dependency.
In re Jewell, 365 B.R. 796 (Bankr. S.D. Ohio 2007)	Rejected relying on the Internal Revenue Manual and rejected a pure "heads on beds" approach; instead focused on whether household members were dependents in fact — i.e., whether they were supported by the debtors — for inclusion in household size on Form B22A.	This court expressly adopted the Jewell court's reasoning as most consistent with the purpose of Form B22A (the means test). The opinion follows Jewell's focus on the debtor's financial support and excludes individuals who are "merely a head on a bed."

Court's Reasoning and Analysis

The court began by noting the undisputed factual record and that the sole legal question was the definition of "household size" for Form B22A, a term not defined in the Bankruptcy Code or on the form itself.

The court examined recent authorities addressing the issue. It summarized Plumb, which discussed family size versus household size but did not resolve the household-size definition because it was immaterial to the outcome in that case. The court next reviewed Ellringer, which adopted the Census Bureau's "household" definition (the "heads on beds" approach) on the ground that median family income is calculated by the Census Bureau; Ellringer reasons that using that definition aligns the household count used in the means test with the census calculations of median family income. The court acknowledged that Ellringer recognizes situations in which unrelated, non-dependent individuals should be treated as household members.

The court then discussed Jewell at length. Jewell declined to follow the Internal Revenue Manual (which ties household counts to dependents claimed on tax returns) and also rejected the Census "heads on beds" approach as inconsistent with the purpose of Form B22A. Jewell emphasized that the means test is designed to determine disposable income, and including persons who live with the debtor but whom the debtor does not support would distort that calculation. Jewell therefore focused on whether the debtor provided financial support to the persons in the home during the relevant period; those who were financially supported by the debtors were included, while adults who were not supported (i.e., "merely a head on a bed") were excluded.

This court found Jewell's analysis most consistent with the purpose of Form B22A. The court agreed with Ellringer only insofar as Ellringer recognizes that unrelated, non-dependent individuals may sometimes be counted, but concluded that the "heads on beds" approach is too broad because it disregards the debtor's financial support and the dependency relationship. Conversely, the court declined to adopt the Internal Revenue Manual standards because they do not account for persons whom the debtor actually supports but does not claim as dependents on tax returns.

The court adopted a case-by-case approach, guided principally by the debtor's history of providing financial support to household members and the debtor's good faith. Applying these considerations to the undisputed facts here, the court found the debtor had, for several years, provided consistent and long-standing support to his girlfriend, their daughter, and the girlfriend's eight children. The court characterized this support as voluntary but not contrived for bankruptcy purposes.

On that basis the court concluded the debtor's household size should be determined by the actual number of people supported by the debtor and therefore that his household size for Form B22A is 11.

Holding and Implications

ORDER: The Bankruptcy Administrator's Motion to Dismiss is DENIED.

Direct effect: The court held that, for purposes of completing Form B22A in this case, the debtor may claim a household size of 11 (the debtor, his girlfriend, and the nine children). Consequently, the debtor's applicable median family income is calculated based on a household size of 11, and his Annualized Current Monthly Income ($109,500.00) is below the applicable median family income cited by the debtor ($111,469.00), such that the BA's basis for dismissal under 11 U.S.C. § 707(b) failed.

Broader implications: The court adopted the analytical approach of In re Jewell — focusing on whether household members were financially supported by the debtor and considering good faith — and indicated it will evaluate household size on a case-by-case basis with those considerations in mind. The opinion rejects both a rigid "heads on beds" Census-only approach and strict reliance on the Internal Revenue Manual, explaining that each is unsuitable for the means-test purpose in certain cases.

End of summary based exclusively on the provided opinion text.

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In re Thomas C. HERBERT, Debtor.

ORDER DENYING MOTION TO DISMISS

GEORGE HODGES, Bankruptcy JudgeWest Page 166

This matter is before the court on the Motion to Dismiss filed by the Bankruptcy Administrator ("BA"). The sole issue presented by the BA's motion is the definition of the phrase "household size" as it is used on Form B22A. Having considered the pleadings and the arguments of counsel, the court denies the BA's Motion to Dismiss and finds that the debtor may claim a household size of 11 on Form B22A.

Background

1. The debtor filed a Chapter 7 petition on March 28, 2008. He lives with his girlfriend and nine children. One of the children is the debtor's biological daughter with his girlfriend, and the remaining eight children are the girlfriend's children from a previous relationship.

2. The debtor, his girlfriend, their child, and the girlfriend's eight children have lived together for several years, and the debtor has supported the girlfriend and her children during that time because their biological father is incarcerated. The debtor has claimed all of the children as dependents on his tax returns and he has attempted to adopt the eight children, but their father will not consent to the adoption.

3. With respect to his bankruptcy schedules, the debtor claims all nine children as dependents on Schedule I. Specifically, he lists one as his daughter and the other eight as stepchildren. The court notes that although the debtor lists the 8 children as his stepchildren, they do not legally fall within that category because he and his girlfriend are not married. See Black's Law Dictionary 255 (8th ed. 2004) (defining stepchild as the "child of one's spouse by a previous marriage.").

4. In addition, the debtor claims a household size of 11 on line 14(b) of Form B22A and an applicable median family in-come of $111,469.00. The household size of 11 includes the debtor, his girlfriend, and the nine children living in the house.

5. The debtor listed Current Monthly Income for § 707(b)(7) of $9,125.00, which includes $1,600.00 his girlfriend receives for food stamps each month. Therefore, his Annualized Current Monthly Income on line 13 of Form B22A is $109,500.00, which is less than the applicable median family income of $111,469.00 for a house-hold size of 11 in North Carolina. Therefore, the debtor was not required to complete the remaining portions of Form B22A.

6. The BA moved to dismiss the debtor's case on the basis that the debtor is entitled to claim only a household size of 2, which includes himself and his daughter. Therefore, the BA argues that the debtor's applicable median family income should be $49,259.00, which is the applicable median family income for a household size of 2 in North Carolina. And if the debtor's applicable median family income is $49,259.00, it would appear he has sufficient disposable income to pay unsecured creditors some portion of their claims over 60 months. For that reason, the BA moved to dismiss the case pursuant to 11 U.S.C. § 707(b) as an abuse of Chapter 7.

Discussion

7. The facts in this case are not in dispute. Thus, the sole issue to be determined by the court is what number the debtor should use for household size when completing Form B22A. Unfortunately, the phrase is not defined in either the Bankruptcy Code or on Form B22A.

8. This court considered a related issue in In re Plumb, 373 B.R. 429 (Bankr. W.D.N.C. 2007). In Plumb, the parties presented the definition of the term "household" as one of the issues to be determined by the court. However, in considering the matters before it, the court found that the debtors' household size was inconsequential because whether the household size was 2, as argued by the creditor, or 10, as argued by the debtors, the debtors' annualized currently monthly income was more than the applicable median family income. See Plumb at 437. Therefore the court did not reach the issue of what Congress meant by "household size" on Line 16 of Form B22C.

9. Rather, the court determined what Congress meant by "family size" for purposes of completing Lines 24 and 25A of Subpart A of Part IV of Form B22C. In making that determination, the court analyzed whether Congress intended for household size and family size to be synonymous on Form B22C, and the court ruled that it did not — primarily based on the fact that 11 U.S.C. § 707(b)(2)(A)(ii)(II) refers to household member and family member alternatively. See id. at 438. And the reference to household member within § 707(b)(2)(A)(ii)(II) is more inclusive than the reference to family member, which is defined somewhat in a parenthetical. Ultimately, the court held that the debtors' applicable family size included themselves and their seven children, grandchildren, and great-grandchildren, but it excluded a fiancee. See id.

10. One of the leading cases to have considered the definition of "household size" is In re Ellringer, 370 B.R. 905 (Bankr.D.Minn. 2007). In Ellringer, the court held that the Census Bureau's definition of household is the most appropriate one because § 101(39A)(A) defines median family income as "the median family in-come both calculated and reported by the Bureau of the Census." See Ellringer at 910. The Census Bureau defines "house-hold" as "`all of the people, related and unrelated, who occupy a housing unit.'" See Ellringer at 911 (quoting the U.S. Census Bureau, Current Population Survey (2004) http://www.census.gov/ population/www/cps/cpsdef.html). The Ellringer court concluded that using the Census Bureau's definition "ensures that a household in the means test will have the same number of members as the calculation of median family income." See id. at 910-911. This approach has been referred to as the "heads on beds" approach, and it does not take into consideration financial contributions of the household member, dependency, or the relationship of the household member to the debtor.

11. As this court did in Plumb, the Ellringer court found that Congress meant two different things by family size and household size on Form B22A. In addition, the court noted that Congress elected to use the broader term "household size" on line 14(b) of Form B22A in recognition of the fact that there may be instances in which two unrelated, non-dependent individuals should be treated as a household for purposes of the means test. See id. at 911. Using the "heads on beds" approach, the court concluded that the debtor resided in a household size of 2. Included in that number was the debtor's roommate of several years with whom she owned her home as joint tenants; was jointly liable for the mortgage; had a joint bank account; and jointly owned a 2002 Ford Focus. See id. at 910.

12. Another leading case to interpret the phrase household size is In re Jewell, 365 B.R. 796 (Bankr.S.D.Ohio 2007). In Jewell, at the time the debtors' filed their case, they lived with their two dependent children, an adult daughter, Crystal, her three minor children, and an adult son, Chris. Crystal and her children had lived with the debtors for approximately six months at the time the debtors filed their petition. Crystal did not help pay any of the household expenses, and the debtors provided Crystal and her children funds for medical care, gas, and other needs. See Jewell at 798.

13. The other adult child, Chris, never left home, but he attended college and had a full-time job. He neither contributed to the household expenses nor accepted financial assistance from the debtors. Finally, the two dependent children were both employed, but they did not contribute financially to the household expenses. See id.

14. In their second amended Form B22A, the debtors claimed a household size of 8, which resulted in their Annualized Current Monthly Income being less than the applicable median family income in Ohio. As a result, they were not required to calculate the monthly disposable income on Form B22A. The United States Trustee moved to dismiss the case for abuse pursuant to 11 U.S.C. § 707(b)(2)(A) on the basis that the debtors were claiming a household size larger than that to which they were entitled. See id.

15. The United States Trustee argued that the court should look to the Internal Revenue Manual (the "IRM") as guidance for determining the definition of household size. See id. at 800. The IRM in turn states that the number of household members allowed for purposes of determining the applicable National Standards should generally be the same as the number of household members allowed as dependents on a tax return. See id. The Jewell court rejected this approach as being too narrow because it fails to recognize those instances when a debtor may be actually providing support for a household member. See id. at 801. In that regard, the court noted that even the IRS acknowledges that there may be reasonable exceptions to the general rule stated above. See id.

16. The Jewell court also rejected the Census Bureau definition of household or the "heads on beds" approach argued by the debtors because the court found that it is inconsistent with the purpose of Form B22A, which is a "means test" designed to determine disposable income. See Jewell at 800. Specifically the court found that:

Such a definition is inconsistent with the methodology and purpose of Official Form 22A for calculating a debtors' disposable income in that it does not include the element of a debtor's support of the person who puts the head on the bed. If a person lives in the home with the debtor but the debtor does not support that person, then inclusion of that person for purposes of calculating the applicable median family income and disposable income would give rise to a faulty calculation and would result in an inaccurate figure for both.

See id. The court also noted that the purpose for which the Census Bureau determines household size is "radically different" than the purpose of Form B22A. See id.

17. The Jewell court ultimately held that the debtors could claim a household size of 8, which included the debtors, the two dependent children, Crystal, and her three children. See id. at 802. The court concluded that Crystal and her three children should be counted as part of the household because they had been dependent on the debtors for support during the six months prior to the filing of the case. See id. at 801. On the other hand, the court did not include the debtors' adult son, Chris, who it considered to be "merely a head on a bed." See id. Although the debtors occasionally provided Chris funds, the court emphasized that he did not regularly receive financial assistance from the debtors, and they did not provide him support in the form of food and clothing. Neither did the debtors claim Chris as a dependent on their tax returns. See id.

18. This court is persuaded to follow the reasoning in Jewell because it seems the most consistent with the purpose of Form 22A, which, as the Jewell court noted, is a means test designed to determine a debtor's disposable income. While this court agrees with the Ellringer court to the extent it recognizes that there will be instances in which unrelated, non-dependent individuals should be treated as part of a household, the "heads on bed" approach adopted by that court is too broad because it includes anybody who may be residing under the debtor's roof without regard to their financial contributions to the household or the monetary support they may be receiving from the debtor. Neither does it take into consideration their dependency or relationship to the debtor. On the other hand, the court declines to adopt the standards of the Internal Revenue Manual for purposes of determining household size because they do not account for the situation in which a debtor may be supporting an individual without declaring that person as a dependent on his tax return.

19. And although the Jewell court did not delineate hard and fast guidelines for calculating household size, it looked primarily to the debtors' financial support of their household members to determine whether those individuals should be included within the household size for purposes of Form B22A. This approach recognizes that debtors have a variety of different living arrangements that defy being pigeonholed into a neat formula for purposes of defining household size. In that regard, this court notes that it will consider the issue of household size on a case by case basis with key considerations being the debtor's history of support of a household member as well as the debtor's good faith.

20. Applying that analysis to this case, the court finds that the debtor has a household size of eleven. The reality of this debtor's situation is that he is — and has been for several years — supporting his girlfriend, their daughter, and her eight children. That support, while voluntary, has been consistent and of long standing. It is not contrived or concocted for the purpose of this bankruptcy filing. But, rather, appears to be simply the fact of this debtor's life.

21. The court is satisfied that the debtor's applicable median family income should be calculated based upon that reality rather than on some artificial construct. Consequently, the court concludes that this debtor's "household size" is determined by the actual number of people supported by the debtor; and that his applicable median family income should be calculated based on a "household size" of 11.

It is therefore ORDERED that the BA's Motion to Dismiss is DENIED.

IN RE HERBERT