Bankruptcy Misinformation: Business Debtors Don’t Use Means Test

10 Jul Bankruptcy Misinformation: Business Debtors Don’t Use Means Test

Last night, I heard the same NPR broadcast that Susanne Robicek wrote about here. To summarize, a commentary on Marketplace made incorrect statements about the affect of the changes to the bankruptcy laws. The errors were serious, and occurred on a show that I usually find accurate and insightful. I was left slack-jawed.

Unlike some other media sources that I might question, I don’t think the intent was to mislead at all. I can’t help but wonder where the commentator got her information, but her point was valid–that fewer people are willing to take a risk to start a business because the bankruptcy laws have changed. Unfortunately, I think this kind of report is part of the problem. After hearing her commentary, would-be entrepreneurs would have to think twice about starting a new business. The problem is, it was wrong on several key points. Her first point was that anyone whose income exceeds median income for their state cannot file Chapter 7. That is simply not true, but the more important point is that, for those whose debts are primarily business debts, the means test does not apply at all. In analyzing the risk of starting a new business, the means test shouldn’t even be on the radar. If the changes in the bankruptcy laws are discouraging new business start-ups, it is because of that kind of misinformation, not because of any real impact of the change in the law.

There were other errors in the commentary; I will leave those another time, or another blogger. As Susanne says, it’s no wonder people are confused, when the most respected members of the media, those we trust for accurate and complete information, get it wrong. To me, the real story in this and other media stories that have gotten the bankruptcy law wrong is this–bankruptcy is an enormously complex area of the law. Most reports on the changes in bankruptcy law are incomplete at best; some are outright misleading. That means that someone who is considering bankruptcy (or considering starting a new business) shouldn’t rely solely on those media sources for information, or on Uncle Fred, or a neighbor, co-worker, or brother-in-law, for that matter. To get the real story about how bankruptcy will affect you, how it can help you, or its limitations, you have to go see an attorney who understands the whole picture. Seriously.

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