Under certain circumstances, those who want to qualify for Chapter 7 bankruptcy will not have to take a means tests to do so. Having a substantial amount of business debt is one such circumstance. If more than half of your debts are considered non-consumer debts, then you do not have to worry about a means test disqualifying you from this bankruptcy protection. While some personal debts may be labeled as non-consumer debt, this term usually refers to debts that are related to a business or making a profit.
The means test is meant to assess your income and whether it is too high for Chapter 7 bankruptcy. If you are deemed ineligible for this process, then you would have to find protection from Chapter 13 bankruptcy, where you end up paying a good portion of the debt yourself. The means test looks at your income for the past six months and compares this to the median income in the state where bankruptcy was filed. If your income is below this standard, then you qualify. If you make more than the median, then it will be determined whether or not you have enough disposable income to pay off debt.
Fortunately, you can bypass this whole process if you qualify for a business debt exception. If your income would be considered too high according to the means test, this does not matter if more than 50 percent of your debt is from non-consumer debt. So what is non-consumer debt? In general, this refers to expenses that were made to further your business, or that were spent with the goal of turning it into a profit. This would then include expenditures made on a credit card that went toward business costs or purchases. Any business vehicle loans or business taxes would also fall under the column of business debt. You can also view debts to suppliers and vendors as such debt, and depending on where you live, a mortgage could also be considered debt. This is if the mortgage is for a place where business is conducted, or it is being used as an investment property.
In other locations, this mortgage will be viewed as a personal (or consumer) debt. In this column go the household bills and personal expenditures. This means non-business credit cards, the mortgage on your home, and loans you have taken out for a car. It will be up to a court to decide whether your individual tax liability is a consumer or non-consumer debt. Thus your mortgage could pose the largest problem, as this could make all the difference in assessing whether or not most of your debt is deemed business debt.
If you have mostly business debt, this alone does not qualify you for the exception, however. There is the further condition to meet, and it is called the good faith requirement. If a court decides that someone has not acted in good faith, in spite of qualifying through the means test, that person can be disqualified. This could be the case if someone clearly has enough debt to pay off debt through reorganization bankruptcy (Chapter 13 bankruptcy).
If you are looking into filing for Chapter 7 bankruptcy, but are uncertain about being able to qualify, it is important to know that there are a couple of other exceptions that military members may be eligible for. Also, if you are a small business owner, you may need to be aware of special considerations that bankruptcy will require, and what specific steps you will need to take. You can find answers and advice for all these processes and more when you contact a qualified bankruptcy attorney.