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Unborn Children and the Means Test

October 26, 2011

By: David M. Serafin

Under the rather mechanical Means Test enacted under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), household size is critical to qualification for chapter 7 or, alternatively, keeping a chapter 13 payment as low as possible. § 1325(b)(4) of the Bankruptcy Code does not define household member so courts nationwide are left to their own devices in interpreting this term.

A higher number of household members typically will give the debtor a better chance at discharging more debt in paying back unsecured creditors as little as possible. In part, the Means Test determines whether a debtor has sufficient disposable income to pay back over the next five years. A Colorado debtor with primarily consumer debt will only pass the Means Test if the combined household income, when compared with number of household members, is less than the median income.

But, should a child not yet born at the time of the bankruptcy filing be counted as a household member? As it has considerable discretion whether to file a 11 U.S.C. § 707(b) Statement of Presumed Abuse in challenging a debtor’s Means Test calculations, the United States Trustee’s position typically is that a child should only count as a household member if born before the bankruptcy petition filing date.

In In re Pampas, 369 B.R. 290 (Bankr.M.D.La. 2007), a Louisiana Bankruptcy Court held that the chapter 7 debtor did not pass the Means Test as her third child had not yet been born on the date the U.S. Trustee filed a motion to dismiss or convert the case to chapter 13.

This issue was subsequently litigated in the chapter 13 bankruptcy context in In Re Fleischman, 372 B.R. 64 (Bankr.D.Or. 2007), whereby an Oregon Bankruptcy Court held that an unborn child does not count in determining the chapter 13 applicable commitment period under § 1325(b)(1 – which determines whether a debtor makes plan payments for 3 or 5 years. The court reasoned that not factoring unborn children as household members is consistent with other aspects of Federal law, particularly the fact that the IRS does not a taxpayer to claim the dependency exemption for a yet to be born child. More significantly, the court also expressed concern for situations where a chapter 7 discharge occurred or a chapter 13 plan was confirmed without a guarantee of a live and safe birth (as a miscarriage or abortion could still occur).

The opposite decision was reached in In re Baker, Bankr. Court, ND Illinois 2009, whereby an Illinois Bankruptcy Court relied on the fact that the bankruptcy schedules can always be amended to show a household size increase or decrease prior to plan confirmation to reflect changed circumstances. The Debtors’ second child was born just days after the chapter 13 trustee filed a motion to dismiss but before confirmation.

As an Aurora, Colorado debt lawyer, this author believes courts who face this issue in the future will find the mother’s stage of pregnancy to be especially important. Considering that the Means Test looks to a hypothetical five year future window in calculating the debtor’s income and expenses, once it’s almost certain that the child will be safely born, future expenses such as food, clothing, medical treatment and childcare should be deemed highly relevant in reducing the amount which can be paid to unsecured creditors.

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