Bankruptcy Means Test: Roommate’s Income Doesn’t Count, Judge Says

07 Jul Bankruptcy Means Test: Roommate’s Income Doesn’t Count, Judge Says

A recent Minnesota bankruptcy court ruling makes it easier for persons with roommates to claim a two-person household, while simultaneously excluding the roommate’s income from use in the means test.

This is important because in some cases, this can result in the debtor’s income being below the state’s median income for a two-person household, thereby relieving the debtor from even taking the means test. It also can shorten the required length of a chapter 13 plan from five to three years — a major benefit for a chapter 13 debtor.

In this case, In re Bostwick, 2009 WL 1788046 (Bky.D.Minn. June 23, 2009), the debtor earned $49,992 per year. Minnesota’s median income for a one-person household was $45,832 per year; for a two-person household, $59,778. She paid $800 per month rent to the landlord for use of one bedroom and the common areas of a single family home. Her roommate paid $800 per month rent for a different bedroom and use of the common areas. These two unrelated roommates split the utility costs. A third bedroom was vacant, and the landlord was looking for a renter at the same $800 per month rent.

The chapter 13 trustee objected to the debtor’s plan, claiming that she should have included her roommate’s rent payments as “income paid towards the debtor’s household expenses.” The trustee also argued that this would push the debtor’s income over the median for a two-person household in Minnesota, requiring a five year plan, rather than three years as the debtor had proposed.

The court held that the utilities were a shared household expense, and therefore the roommate’s half of the utilities should be added to the debtor’s income. However, this only increased the debtor’s income by a few thousand dollars per year. Next, the court held that the roommate’s rent expense was his own obligation, and it did not constitute a payment toward the debtor’s household expenses. Also, none of the roommate’s other income was paid for the debtor’s household expenses, and his income was properly excluded from consideration.

The court also held that under Census Bureau guidelines, the debtor lived in a two-person household. There was no separate entrance in the home for each of the different tenants, and except for having separate bedrooms and storage, they lived and ate meals together in the home’s common areas. The fact that the debtor and roommate were unrelated also had no bearing on the question of household size.

The court held that the debtor’s annual income was below the median income for a two-person household, and accordingly her three-year chapter 13 plan was confirmed.

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Craig Andresen is a Minnesota bankruptcy attorney who represents both consumers and small business owners in chapter 7 and chapter 13 cases. With thirty years experience, Mr. Andresen is a frequent speaker on the topics of stopping mortgage foreclosures, and stripping off second mortgages in chapter 13. His office is located in Bloomington just across the street from the Mall of America. Call his office at (952) 831-1995 for a free consultation about protecting your rights using bankruptcy.

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