Business and the Means Test

by Douglas Jacobs, Esq.

March 11, 2011

Filing bankruptcy if you have a business can be different from a typical consumer case.  First of all, if 51% of your debts were incurred for your business, you won’t have to file the means test! Thus, you avoid the problem of having too much income to qualify for a Chapter 7.  Fortunately, it is not too difficult to determine which bills are business debts and which ones aren’t.  Just be sure you can defend that position with invoices or contracts should the need arrive.

If you don’t qualify for the business debt exception, you’ll have to list your gross monthly income on Form B22 – the means test form.  You do get to deduct the costs of operations and running the business.   But where do you take the deduction?  There is a difference of opinion in the judicial community.

Here in the 9th Circuit (California and the western states), you can’t deduct those expenses until after the determination of your gross monthly income. You do get to deduct them later, but “below the line.”

The “line” is the determination of monthly income. If it is above “median” (determined on a state by state basis), then you may have to sign up for a five year plan. If it’s below that figure, then you can qualify for a three year plan.  Two less years of making the Chapter 13 payments!  [Note that there is also a difference of opinion on whether or not you can do less than a five year plan if you are above median income but have little or no disposable income at the bottom of the form.]

All pretty complicated, and it varies greatly depending on where you live.  Just one more good reason to contact a qualified bankruptcy attorney in your area.

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.

Last modified: October 22, 2012