The means test doesn’t apply in many business bankruptcy cases

20 May The means test doesn’t apply in many business bankruptcy cases

Most people who make more than the median income must pass the means test if they want to file a chapter 7 case. But people whose debts are not primarily consumer debts don’t have to pass the means test.

What does this mean?

Well, first we need to know what consumer debts are.

The Bankruptcy Code tells us that a consumer debt depends on what you incurred the debt for in the first place. For example if you buy a house to live in but then convert it to a rental property, your debt on this house is a consumer debt. On the other hand, if you purchased a property for an investment and then moved into it, the debt on this house is a not a consumer debt.

A consumer debt is a debt you incur for your personal family needs, living expense and so forth. Focus on the reason you incurred the debt in the first place.

Remember, if you don’t have primarily (more than 50%) consumer debts, the means test simply doesn’t apply to you. You could be eligible for chapter 7 even if you still make income above the nedian level.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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