On July 11th, 2012, the United States Court of Appeals for the Fourth Circuit affirmed a decision by the United States Bankruptcy Court for the Eastern District of North Carolina that developed a new method of calculating household size. Before this case, there were three methods that courts looked at to determine household size. The “heads on beds” approach simply counts the number of people who have lived in the household. The income tax dependent method counts any dependent that the Debtor could claim on their income tax return. Finally, the economic unit approach counts any person that the Debtor actually supports financially. Each of these methods has problems associated with them. Jurisdictions vary on what approach to take based on which method a judge feels works best under the Bankruptcy Code.
In this case (Johnson v Zimmer), the Debtor had a complex familial situation. She had an ex-husband, two children of her own, and three step-children. However, the five children did not reside at the home on a full-time basis. That is because she held joint custody with the ex-husband. Initially, she claimed a household size of seven using the “heads on beds” approach. However, the ex-husband, who happened to be a creditor, objected. He stated that the children were not full-time residents and should not be included in the household size calculation.
In response to the creditor’s objection, the court developed a new approach called the “fractional method” of calculating household size. How this works is the court first calculated a percentage of how long each of the children lived at the house during the year.
Each child is assigned a number based on their percentage of time in the house. They then totaled these numbers up and came to a number which they applied as the household size. For example, if there are 3 children and the youngest child lives in the house all year (1), the middle child lives in the house for half the year (.5) and the oldest child lives in the house for 3 months out of the year (.25) their total would be 1.75. With that, the court determined that the five children constituted 2.59 members of the household which they rounded up to three. Three children plus two adults add up to five. And, this is what the court said the household size must be.
The court rejected her household size of seven. Furthermore, the court determined that confirmation would be denied unless a household size of five is used.
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