Does my boyfriend’s contribution to utilities hurt my ability to qualify for chapter 7 bankruptcy?

Reader Question:

I live with my boyfriend who has his house paid-off. I pay him $450 month for my share of the food and utilities. I earn just under the cutoff to be able to file for Chapter 7 bankruptcy. The problem, as I see it, is would I have to include what he pays toward the household utilities (which are all in his name) as additional income for me? If so, I can’t file Chapter 7 and won’t be able to discharge my $70K in cc debts. I was just approved for long-term disability through my employer if that matters. I am unable to work.
 

Answer

When unmarried people share living quarters, each is usually considered a separate family unit for purposes of bankruptcy. This is important because there are two chapters under which almost all individuals file, either Chapter 7 or Chapter 13. Under Chapter 7, debts are forgiven (with exceptions for taxes, student loans and debts acquired by fraud) and no payments are made to the creditors. Under Chapter 13, some payment is made through the court’s trustee to creditors, and can range from a few percent to 100 percent depending on the income of the person filing for bankruptcy.

Obviously most people would rather file under Chapter 7 and not have to pay any of their debts. However, if your income is above a certain level, the law requires one to file under Chapter 13 and pay some debts back. In this case, the questioner was wondering if her boyfriend’s payments towards the utilities would be income to her, and thus bring her over the limit, requiring her to file in a Chapter 13. This consideration of whether someone is over or under the amount allowed in a Chapter 7 is often referred to as whether they pass the “means test.” When one “passes” the means test, one is able to file under Chapter 7.

If the questioner has no children or other dependents living with her, she would be a family of one and would be able to earn between $50,521 (in Missouri) annually, and still qualify for Chapter 7. If she has one child living with her, the allowed income goes up to $65,680 in Missouri.   For each additional child, the amount increases proportionately. None of her boyfriend’s payments towards shared utilities would be income to her. It would be as if she was living alone and her food and utility costs were the $450.00 she gives to her boyfriend.

Interestingly, if the boyfriend were to file a bankruptcy (and he would probably not want to do so because he owns a paid-off house) he would have to include her payments in his income as rental income, which would increase his income for purposes of the means test. However, since the questioner is not the owner, and is paying to live there, she is treated as if her expenses for living there are $450.00, and her income is not increased by the boyfriends payments for food and utilities.


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