In bankruptcy, we count “heads on beds,” regardless of whether or not you have legal custody. I often have a situation where grandma and grandpa are raising the grandchildren while the actual parents are incarcerated, out of country, or otherwise missing in action. The grandparents never actually filed the necessary court paperwork to establish themselves as legal guardians, but for all intents and purposes, they’re raising the children. In this situation, I count the children as part of the overall household.
This matters when you are running a 6 month average of income in the bankruptcy means test. Without the children, your income may be too high to file a chapter 7, but with the children, their expenses may drive you under the median income, and you qualify for a more simple Chapter 7 case.
I am not a CPA or even a tax accountant, a tax professional, or someone who can give you any tax advice. That being said, I know that if you’re supporting and raising the children, you can probably even claim them for taxes, whether or not you have legal custody.