Chapter 7 Bankruptcy and Business Debts

The new bankruptcy law imposes a "means test" to determine if certain debtors are eligible to file Chapter 7 bankruptcy. Only debtors who, according to the means test formula, lack the ability to repay substantial portion of their debts may file Chapter 7.

Most people do not yet understand that the means test applies only to consumers. Consumers for bankruptcy purposes are people whose debts are primarily consumer related. People who incur most of their debts from business are not subject to the means test, and they may file for Chapter 7 without application of the means test formula. People who find themselves insolvent because they borrowed money on credit cards to support a business or an investment, or people who seek bankruptcy protection from personal liability on business related debt can file Chapter 7 under the new bankruptcy law regardless of means test standards.