The economic downturn in the United States has created many problems for individuals and families living in America. People have lost wages, jobs, or even their homes because of the recession. Unfortunately, filing for bankruptcy may be inevitable for some of these individuals if they are unable to stay afloat financially. Bankruptcy might be a way to wipe out debt and restart your financial life, but if you are dealing with other effects of the slow economy, it could create some problems.
First Steps in Filing for Bankruptcy
Filing for bankruptcy is a decision that needs to be made very carefully. It can have a lasting effect on your credit rating, affect your ability to get financing for essentials, and ultimately determine the way your finances proceed in the future. Once you evaluate your situation, which can best be done by speaking to a bankruptcy attorney, you may decide to proceed with a bankruptcy filing. At some point in the beginning stages of bankruptcy, you'll have to determine your household size.
Bankruptcy courts determine a debtor's household size by determining how many dependents live on their income. This factors into a family's claim much more often than an individual's filing for bankruptcy. If a debtor has two dependent children than rely on his or her income to live, then the bankruptcy court will look at their assets and liabilities differently.
Economic factors have contributed to a significant job crisis, leaving many people out of work or under employed. America's younger workers, specifically young adults in their early 20s, have had a difficult time finding and keeping jobs. As a result, they may try to save money by moving in with their parents and avoiding a monthly rent payment. When this happens, it can create a tricky situation for determining household size in a bankruptcy case.
Courts have varying opinions on whether or not an adult child is dependent on their parents. If an adult provides care for their disabled adult child, is qualified to and claims them as a dependent on their tax return, or otherwise provides a majority of their financial support, then they are likely counted in their household size. But some courts find that adult children who live at home and have the ability to find employment should do so and provide income for their family as it struggles to make ends meet.
Unemployment for Adult Children
BusinessWeek stated in a recent article that only 46% of young people between the ages of 16 and 24 had jobs in September 2010, which is the lowest percentage in over 60 years. A family may have difficulty filing for bankruptcy if their adult children are living at home and claiming dependence. In some cases, it could prevent them from getting relief from this kind of financial strain.
Consider this: a couple wants to file for bankruptcy after struggling to pay their bills and racking up a lot of debt. Their 24 year old son lives at home and doesn't pay rent, so they assume that he is dependent on them. A bankruptcy court might not see it that way. They could say that the household only consists of two people, which would increase their average income. If the "household" income is higher than the eligibility threshold determined by the bankruptcy courts, then this couple may not be able to file for bankruptcy. Had their son been counted as a dependent, they might have met the requirements.
The decision to file bankruptcy is difficult, and once you decide to proceed, it can be difficult to learn that your household side doesn't qualify. An attorney can consult you on your options during the preliminary stages of a bankruptcy filing. Additionally, they may be able to develop a strategy that allows you to claim adult children as part of your household. Call an attorney for help with this important decision.