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Exceptions to the Chapter 7 Means Test for Non-Consumer Debt


When you are planning to file for bankruptcy as a result of your business debts, there are many issues you will need to consider. For instance, what type of business structure do you have, and will bankruptcy result in you filing for personal bankruptcy in addition to filing on behalf of your business? When a Tampa business owner has a sole proprietorship, filing for liquidation bankruptcy typically involves liquidating personal and business assets except for those that are exempt. Furthermore, if you are thinking about filing for Chapter 7 bankruptcy in Tampa Bay and much of your debt stems from your local business, will you need to pass the “means test”?

If you have business debt (or non-consumer debt more generally) and are planning on filing for Chapter 7 bankruptcy, an experienced Tampa Bay bankruptcy attorney can speak with you today about your situation and the steps that will be necessary to have your debts discharged.

What is the Means Test, and Why Is It Applicable If I Have Business Debts?

Generally speaking, the “means test” is what determines whether a consumer’s income is low enough to allow for a Chapter 7 bankruptcy filing. The means test was developed to prevent consumers from receiving debt discharges through liquidation bankruptcy when they had sufficient income to repay some of what they owed. In developing the means test, the thinking was that if a consumer has sufficient monthly income to allow for her to handle some of her debt, then Chapter 7 bankruptcy might not be appropriate. In such a case, the thinking was that Chapter 13 bankruptcy—which does not result in asset liquidation for the consumer but requires three to five years of sticking to a payment plan—would be more appropriate.

To be clear, the means test was developed for people filing for consumer bankruptcy.

Now, what happens if you have significant business-related debt? Imagine that you own a small restaurant in the Tampa Bay area, and the restaurant is structured as a sole proprietorship. With a sole proprietorship, the restaurant is essentially the individual and vice versa (for tax purposes). In other words, in a sole proprietorship, your financial well-being as a consumer is often tied directly to your restaurant’s financial well-being. Do you still need to pass the means test in order to file for Chapter 7 bankruptcy if your restaurant is not earning enough income and you need to close its doors?  It depends.

When Your Debts Are Primarily Non-Consumer Debts

In short, under Section 101(8) of the U.S. Bankruptcy Code, if your debts are primarily classified as non-consumer debts, then you do not have to pass the means test in order to file for Chapter 7 bankruptcy. The Bankruptcy Code defines consumer debt as “debt incurred by an individual primarily for a personal, family, or household purpose.” When a majority of your debt is non-consumer debt—and thus is not debt that you incurred primarily for personal, family, or household purposes—then regardless of your likely future income you may be able to file for Chapter 7 bankruptcy.

What do non-consumer debts look like for Tampa residents with sole proprietorships? For example, any debt that you incurred to run your business—such as a loan to buy equipment, to rent the commercial real estate space, to purchase food for the restaurant, or to buy furniture for inside the dining area—is likely non-consumer debt. And if this is the type of debt that makes up the majority of the debt that you want to discharge by filing for Chapter 7 bankruptcy, then you should speak to a Tampa bankruptcy lawyer about whether you can skip the means test.

While some debts such as home mortgages and most medical bills are clearly consumer debt, there are gray areas with other debts.  For example, student loans and civil judgments might go either way.  This is where an experienced attorney provides value to your case.

Contact a Bankruptcy Attorney in the Tampa Bay Area

If you have questions about filing for personal bankruptcy and avoiding the means test, an experienced Tampa Bay bankruptcy lawyer can help you. Contact Samantha L. Dammer for more information.


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