Claiming Parents as Dependents in Chapter 7 Bankruptcy

The Means Test acts as a financial bar disqualifying certain individuals from filing Chapter 7 Bankruptcy. When a debtor fails the Means Test there arises a resumption of abuse which means the bankruptcy will either be dismissed or will be converted to a Chapter 13. The Means Test looks at the debtor’s current monthly income based on a snapshot of the past six months. The income threshold used for the means test changes depending on how many dependents you have. Can a parent be a dependent and thereby increase the means test income threshold?

There are several approaches. The first is the Economic Unit Approach. This approach calculates a debtor's “household” based on individuals who operate as an “economic unit” with the debtor (i.e., those who the debtor financially supports and those who financially support the debtor). The second is the IRS Dependency Approach. This limits the household size to the debtor and any dependents the debtor claims on their tax return.
Either way if the debtor filing for bankruptcy provides at least 50% of the support for a parent or even a grandparent and they are listed in the debtor’s tax return as dependents then they are included as dependent for purposes of the means test. Make sure though that their income is considered as well as their expenses in the petition and for evaluating the means test.

However, for any potential dependent, if the debtors living expenses would be the same if they were not caring for the dependent at home because the potential dependents benefits cover their food, medical expenses and other bills, they’re not dependents.