Filing for Bankruptcy While You Live With Your Parents

Studies show that young adults, and even those who are not so young, are living with their parents at much higher rates than in previous decades. Researchers have attributed part of this trend to the aftereffects of the COVID-19 pandemic, but economic pressures play a key role as well. High living costs and a tough job market for recent graduates sometimes bring young men and women back to the home where they grew up. In other cases, a son or daughter has lived on their own and accumulated substantial debt, compelling them to find a low-cost living option while they get back on their feet.  

Of course, financial obligations don’t go away just because you change your address. If you are thinking about filing for Chapter 7 bankruptcy relief while living with your parents, you should understand that determining your eligibility might be a complex process. Filers must qualify under the means test to obtain a debt discharge under Chapter 7. This determination evaluates household income and size in a manner that does not always align with non-traditional living arrangements.  

As the Bankruptcy Code offers little guidance on defining a household, courts typically use one of the following three approaches:

• Census data — This method considers anyone living in your home as part of your household, regardless of financial independence or contribution. So your parents’ income could prevent you from qualifying for Chapter 7 bankruptcy under the census approach.
• Economic unit — Conversely, courts using the economic unit approach count only those who share income and expenses with you. For instance, if you pay rent to your parents and manage the rest of your finances independently, only you would count as part of your household.
• Dependency — Here, household size is determined by whom you financially support. If your parents fully support you, you might not be considered a separate household for means test purposes.

Your household size affects the income threshold for Chapter 7 bankruptcy eligibility. A larger household has a higher allowable income limit, while a smaller household must meet stricter income requirements. By understanding how courts define household size and working with a knowledgeable bankruptcy attorney, you can gain an informed perspective as to how the court might address your filing if you reside with one or both parents. 

At Jeff Field & Associates, we represent Georgia residents in Chapter 7 proceedings and other types of bankruptcy matters. To schedule an appointment, please call 404-381-1278 or contact us online. Our offices are in Douglasville, Gainesville, Bogart, Lawrenceville, Marietta and Decatur.