The Means Test is in place to determine whether or not an individual is eligible to file Chapter 7 bankruptcy, but is there anyone who is exempt from taking the Chapter 7 means test?
Who Is Exempt From Taking the Bankruptcy Means Test?
If you qualify for an exemption on the Statement of Exemption from Presumption of Abuse Under §707(b)(2) form, you don’t have to take the bankruptcy means test. Most people who are interested in filing Chapter 7 bankruptcy are required to pass the bankruptcy means test before filing. The means test, generally speaking, excludes those who earn a significant income. However, if you fall in one of the few exemptions, you aren’t required to take the test before filing and your income won’t affect your eligibility for Chapter 7 bankruptcy.
What Are the Means Test Exemption Requirements?
- The filer’s obligations are mainly non-consumer (business) debts.
- The filer is a disabled veteran and incurred most of the debt while on active duty* OR
- The filer is a military reservist or a member of the National Guard called to active duty before filing bankruptcy (this usually only qualifies the individual temporarily).**
*A disabled veteran will be eligible for this means test exception by meeting one of two factors: 1) a disability rating of at least 30%, or 2) a discharge from active duty because of a disability that occurred in the line of duty.
**A military reservist or National Guard member called to active duty after September 11, 2001 may qualify for a Chapter 7 means test exemption if they were on active duty or performed a homeland defense activity for at least 90 days. If applicable, the exemption would apply during that time and for 540 days afterward. Once the 540-day exclusion period ends, the means test form must be completed within 14 days.
When Dealing with Business or Non-Consumer Debt:
When most of the debt you hope to eliminate through Chapter 7 bankruptcy is business debt (non-consumer debt), you aren’t required to take the Chapter 7 means test. To consider this avenue, the business debt usually needs to account for more than 50% of your overall debt with your bankruptcy court determining how to specifically calculate that percentage; it could be total amount owed or total number of debts owed, etc.
How Does the Chapter 7 Means Test Define “Business Debt?”
There isn’t one official rule regarding what constitutes a business debt, but courts usually consider the purpose of the debt when making the classification for the purposes of bankruptcy. Non-consumer or business debts are created when attempting to generate a profit; for instance through a business venture. But in some cases, unexpected credit purchases or debts for the individual or the filer’s family may also be included in this category. Some examples of non-consumer or business debt include: car loans on business vehicles, debts owed to vendors or suppliers (of the business), personal guarantees or liabilities made on behalf of a business, necessary medical bills, some tax obligations, etc. However, without an official legal definition of “business debt,” each bankruptcy court determines what qualifies so it is essential to discuss the issue with a reputable, local bankruptcy attorney before making any plans that depend on debt qualifying as business debt.
When Is a Debt NOT a Business Debt?
Consumer debt is NOT a business debt. Consumer debt occurs when an individual meant to take out debt or credit for household, personal, or family expenses, services, or goods.
If you need to file Chapter bankruptcy and are worried the Chapter 7 means test, discuss your options with an experienced bankruptcy attorney. Don’t hesitate to call Kenneth C. Rannick P.C., Tennessee, and Georgia bankruptcy attorney. We help good people through bad times.