Assistance to Dependent Elderly Family Members is Protected
Providing a little monthly financial assistance to an elderly relative is a common thing, especially in Michigan, which is undergoing a very tough economy at the moment with services for the elderly underfunded and failing on a widespread scale. The good news, however, is that, if you are in the position of being able to give a little back to those who have given much to you when you were all a little younger, the Chapter 7 and the Chapter 13 bankruptcy process will generally not stop you from continuing to do so. The worry that most potential clients have who are helping someone special in their lives out is whether they will be allowed to continue spending a portion of their monthly income in this manner. This is not an unfounded worry to have.
Assistance to Elderly Relatives: Where Is It Calculated?
Specifically, in either a Chapter 7 or Chapter 13 bankruptcy, all income and all monthly expenses must be accounted for in two different areas: (1) in the bankruptcy petition schedules themselves, in which you must list your average monthly and your average monthly (household, non-debt) expenses; and (2) in the Means Test, which is a backward-looking (over the 6 months prior to filing) inspection of your average, gross income. It is this Means Test that determines whether one is eligible to file Chapter 7 or if they must file a Chapter 13. The "average monthly income" and "average monthly expense" schedules are largely what determine how much you have to pay each month into a Chapter 13 payment plan (the Means Test can have an effect upon this as well). With regard to the bankruptcy schedules, the amount of "net income" your household has each month when monthly average household expenses are deducted from average monthly income is a very important number. For Chapter 7 purposes, the less net monthly income you have, the better (i.e., more eligible) off you are. Thus, the Chapter 7 bankruptcy trustees and the US Trustee's Office, who inspect every Chapter 7 petition that is filed, will look carefully at your expenses to determine whether you are listing expenses that are unusually high or that are of a non-necessary nature. For Chapter 13 purposes, the net income is what you pay each month as a payment amount into the Chapter 13 payment plan. Again, Chapter 13 Trustees look very closely at these expenses to determine whether you should be paying even more into your payment plan. With regard to the Means Test, if your gross household income is under the median income for your household size in your state, you are eligible for Chapter 7 filing---or, in a Chapter 13, for a 3-year Chapter 13 payment plan rather than a 5-year payment plan. If you are "under-median," that is the end of the inspection, so long as your income has been properly reported, but, if you are "over-median," various deductions can be applied to reduce your income to either qualify you for a Chapter 7 in that context or to reduce the "disposable monthly income" that the Means Test says that you have in order not to have to pay more into a Chapter 13 plan each month than your schedules say that you are able to in that context. Happily, Congress anticipated this need when it drafted the Bankruptcy Code, and a monthly expense for family assistance provided to elderly relatives is allowed both on the bankruptcy schedules and in the Means Test. Such an expense or means test deduction has rarely been questions in any of my former clients' cases.
Family Assistance in Bankruptcy: It's All Relative
A caveat to this is when the amount of money provided to the elderly family member each month is "high." What does "high" mean? It depends on the Trustee in question and on what the household income might hypothetically be if the expense were removed from the picture. There is no bright-line here, as this is a highly relative equation, but an experienced bankruptcy attorney will guide you through the drafting of the petition schedules and the proper calculation of the means test in a manner that will maximize the odds of your being able to both find relief from insurmountable debt and continue to help your loved ones out. Likewise, accounting for the support expense on your "average monthly expense" schedule also requires a careful touch, best served by the assistance of a good bankruptcy lawyer. At the least, however, you can expect to have to provide documentation as to the amount of money actually expended for the benefit of the dependent family-member, as well as to explain the purpose of and the basis of the need for the continued provision of the cash assistance that might otherwise be paid to your creditors. If you are a Michigan resident and would like to explore your options for a Chapter 7 or Chapter 13 bankruptcy with an experienced Michigan bankruptcy attorney, please contact us at (866) 674-2317 or click the button below to schedule a free, initial consultation.
If you enjoyed reading "Can I Still Assist Elderly Relatives if I File Bankruptcy?," please browse our other articles on our main Michigan Bankruptcy Blog.