Written by Craig D. Robins, Esq.
In order to qualify for filing a Chapter 7 bankruptcy petition, you need to pass the means test, which is designed to prevent those individuals with relatively high incomes from easily eliminating their debts in a Chapter 7 proceeding..
The means test formula makes it easier for a larger family to be eligible for Chapter 7 relief than a smaller one. Each additional family member enables the debtors to take an additional, very significant deduction on the means test. These deductions are based on census tables and IRS charts of living expenses. See: New Changes to Means Test
Dealing with the Means Test If a Female Debtor is Expecting
If the wife is pregnant and expecting, can you include the unborn child as household member of the family to calculate family size for means test purposes? If you could, this might mean the difference between passing or not.
In at least one case, the United States Trustee has taken the position that an unborn child cannot be included as a family member for means test purposes. Some bankruptcy courts have adopted this position stating that a debtor may not rely on events which have not yet occurred.
That was the case in In re Pampas, 369 B.R. 290 (Bankr.M.D.La. 2007). In that case, the child had not been born as of the date of the bankruptcy filing, and the debtor was still carrying at the time the U.S. Trustee brought a motion do dismiss. The court dismissed the case, although the unborn child issue was just one of several concerns the court addressed.
However, this case and outcome does not necessarily spell doom for the debtor, and I do not think a similar result would have occurred if this situation had arisen here in New York.
Arguing “Special Circumstances” As a Way Around a Failing Means Test
A debtor who has filed with an unborn child, can argue “special circumstances” under Bankruptcy Code § 707(b)(2)(B).
This section enables a debtor to argue that a presumption of abuse, which is what happens if the debtor fails the means test, can be rebutted by demonstrating that there are special circumstances that justify additional expenses or adjustments to the current monthly income.
Generally, to support a claim of special circumstances, the debtor must itemize each additional expense or adjustment of income, and provide documentation and a detailed explanation of the special circumstances that make those expenses or income adjustments necessary and reasonable.
Perhaps the U.S. Trustee Would Be Reasonable
I would like to think that most local offices of the U.S. Trustee would be reasonable under such situations and keep the case in abeyance, pending the birth of the child. It would seem unlikely that a US Trustee would put much effort into seeking dismissal of a case, when shortly after the dismissal the debtor would qualify anyway because of the increased family size after the baby is born.
I personally represented a debtor last year where this became an issue. I did not include unborn children in the family size at the time of filing. However, the Chapter 7 trustee questioned the propriety of some of the other deductions on the means test and debated whether to refer the matter to the U.S. Trustee for further review as to whether the meanst test meant that this was an abusive filing.
My response to the Chapter 7 trustee was that it didn’t matter because the debtor was several months pregnant with twins, and even if the trustee was able to disallow some of the debtor’s means test deductions, the debtor would still quickly qualify in any event because of the increased family size. After some back-and-forth discussion, and proof that the debtor was pregnant, the trustee let the matter go, and the debtor received her discharge.
I also find that communicating in advance with the U.S. Trustee is very important. If I had to file a case in which the debtors had to rely on an unborn child to pass the means test, I would disclose the information early on.
If the U.S. Trustee believes that the debtor has filed in good faith, then it is much more likely that they will evaluate the case in a fair and equitable manner and give due consideration to the debtor’s special circumstances.
An Objection by the U.S. Trustee Can Be Politically Charged
In parts of the country, the U.S. Trustee might want to avoid raising controversy over the potential for politically-charged issues which can result in Roe v. Wade type arguments that are used in debates over the right to abortion.
There’s Always Waiting a Few Months so the Unborn Child Can Undisputedly Be Included in the Bankruptcy Means Test
If debtors want to play it safe, they can wait until the baby is born before filing. That way, there would not be any controversy of dispute over family size. However, sometimes debtors need immediate bankruptcy relief and simply cannot wait.
In a worse-case scenario, if the U.S. Trustee brought a motion to dismiss the case, refusing to accept the unborn child as a member of the household for means test purposes, the debtor could always let the case be dismissed, and then re-file after the child is born.
Other Issues Concerning Family Size for Bankruptcy Means Test Purposes
Unborn Children in Chapter 13 Bankruptcy Cases
In Chapter 13 cases, a debtor will often pay less into a monthly Chapter 13 plan if there is another member of the household. This savings is usually many hundreds of dollars a month. Therefore, an expected child could make a great impact as to the affordability of a Chapter 13 plan.
If the issue of an unborn child arose in the context of a Chapter 13 filing, I would argue that confirmation should be delayed until the child is born if the Chapter 13 trustee is not willing to count the unborn child right away. Then, assuming the child is indeed born, the baby should be included in the household size.
In one Colorado case, the bankruptcy court stated that a debtor had the right to amend schedules to show an increase or decrease to household size prior to plan confirmation, to reflect changed circumstances. In that case, the unborn child was delivered just days after the Chapter 13 trustee filed a pre-confirmation motion to dismiss. In re Baker, (Bankr. Court, ND Illinois 2009).
In the Baker case, the court interpreted Bankruptcy Code § 1325(b)(1) (which states that the applicable commitment period should be determined as of the plan’s effective date), as meaning the date when the plan is confirmed. Thus, the Baker court permitted the debtors to include the unborn child in the means test over the objections of the Chapter 13 trustee.
The Importance of Consulting with Experienced Bankruptcy Counsel When There Are Means Test Issues
When unusual issues arise that can mean the difference between qualifying or not for bankruptcy relief, it becomes that much more important to seek out experienced bankruptcy counsel.
The means test is rather complex and complicated. Retaining an experienced Long Island bankruptcy attorney
is your best way to ascertain whether you qualify for Chapter 7 bankruptcy filing, and if not, to learn what your other options are.