Ruling on means test for individuals with roommates

Recently, a Minnesota bankruptcy court made a ruling with significant implications for the means test for individuals with roommates.  The key issue was the impact a roommate has on the  interpretation of the definition of a household and consequently the median income issue.  For debtors, the favorable interpretation could reduce the length of a Chapter 13 plan from five to three years and could qualify them for a Chapter 7 proceeding.  The interesting element of the ruling was that it allowed someone with a roommate to classify their residence as a two-person household, yet exclude the roommate’s income from the calculation for the means test.  If the debtor’s income is below the state’s median level, they could even avoid taking the means test altogether and qualify for a Chapter 7.

The case, re Bostwick, 2009 WL 1788046 (Bky.D.Minn. June 23, 2009), involved the debtor and her unrelated roommate, who shared a single family home which they rented from a landlord.  Each paid $800 per month for their respective rooms and a shared common area.  They split the utility costs.  The debtor earned $49,992 per year.  The Minnesota benchmark for median income is $45,832 for a one-person household and $59,778 for a two person household, so the debtor’s income fell in between the two figures.  The court’s Chapter 13 trustee believed the roommate’s rent constituted “income” paid toward the debtors’ household expenses, which would have caused the debtor’s income to exceed the two-person benchmark and thus forced the five year plan.

The court agreed that the roommate’s portion of the shared utilities should be added as income (which didn’t push the debtor past the benchmark), but ruled that the rent expense was directed to the roommate’s own housing obligation and therefore was not considered part of the debtor’s household expenses.

Another important ruling was the court’s confirmation that the debtor’s housing arrangement was indeed a two-person household.  The court referred to Census Bureau guidelines for a two person household that requires a common entrance and the sharing of a common area for meals and general living space.  Also, the issue of household size was not impacted by the fact that the debtor and the roommate were unrelated.

In summary, the court ruled that the debtor indeed had a two person household, that the total of her income and the roommate’s portion of utilities fell below the median income guideline and upheld her three-year Chapter 13 plan.

This content is not meant to constitute advice of any kind, including without limitation, legal advice of any kind. If you require advice in relation to any legal matter you should consult an appropriately qualified lawyer.

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