Who Does Not Have to Take The Bankruptcy Means Test?

by
Richard Fonfrias, J.D.
Chicago's Financial Rescue & Bankruptcy Lawyer
Fonfrias Law Group, LLC



The means test determines whether your income is low enough to qualify for Chapter 7 bankruptcy. However, if most of your debts are business related, you may still qualify regardless of your income. Read on to learn more about the business debt exception to the means test.

The Bankruptcy Means Test is intended to disqualify high-income people from being able to wipe our their debt with a Chapter 7 Bankruptcy (liquidation). It determines whether you have the "means" to pay a portion of the debts you owe to creditors.

If you do not pass the means test, then you cannot file a Chapter 7 bankruptcy. However, you may file a Chapter 13 (repayment plan) to pay off some of your debts.

If you do not pass the means test, then you cannot file a Chapter 7 bankruptcy. However, you may file a Chapter 13 (repayment plan) to pay off some of your debts.

Here are a few exceptions of people who are excused from taking the means test. You do not have to take the means test if ...

  • Your obligations are mostly business debts rather than consumer debts;
  • You are a disabled veteran and amassed most of your debts while on active duty; or
  • You are a military reservist or a National Guard member who was summoned to active duty prior to filing your case. (This exclusion is usually temporary.)
Here are details about each group:

Business Debt Exception - Non-Consumer Debt
If the debts you want to erase in your Chapter 7 Bankruptcy (liquidation) are mostly (usually meaning over 50%) non-consumer debts, then you are not required to take the means test. Non-consumer debts are primarily debts that you incur due to your business or in your effort to earn a profit. In addition, non-consumer debts can also include obligations that you did not intend to incur for personal purposes. If you borrow money for personal, family, or household expenses or products, then the debts are considered consumer debt. No hard and fast rule exists for courts to consider non-consumer debts. Even so, courts usually look at the purpose of the debt when classifying it in bankruptcy. Most bankruptcy courts consider the following as non-consumer debts:
  • car loans for business vehicles,
  • debts owed to business suppliers,
  • personal guarantees and business debts,
  • most tax obligations (even those unrelated to a business), and necessary medical bills.
Since courts differ on what constitutes non-consumer debt, make sure you talk with an experienced bankruptcy lawyer to learn how courts in your area rule.

Disabled Veteran Exception
If you are a disabled veteran, and your debts were incurred mostly while on active duty or performing a homeland defense activity, then you are exempt from taking the means test for Chapter 7 bankruptcy.

You are considered a disable veteran for the means test exemption if you have a disability rated of at least 30%, or if you must be discharged from active duty military because of a disability that occurred in the line of duty.

Exception for Reservists and National Guard Members
If you are a military reservist or a National Guard member who was called to active duty after September 11, 2001, then you may qualify for an exclusion from the means test requirement. If you were on active duty or performing a homeland defense activity for at least 90 days, then you are excused from taking the means test during that time and for 540 days thereafter.

When your 540-day exclusion period ends, you must complete the remainder of the means test form within 14 days. Here are a few exceptions of people who are excused from taking the means test. You do not have to take the means test if...
  • Your obligations are mostly business debts rather than consumer debts;
  • You are a disabled veteran and amassed most of your debts while on active duty; or
  • You are a military reservist or a National Guard member who was summoned to active duty prior to filing your case. (This exclusion is usually temporary.)