The Means Test Does Not Affect Everybody

The part of the new bankruptcy law which has received most attention is the "means test." The means test is a mathematical formula that determines your qualification to file a Chapter 7 bankruptcy based on your income and expenses and other applicable special circumstances. Individuals that do not pass the means test because they are deemed able to repay part of their debts must file a Chapter 13 bankruptcy in lieu of a Chapter 7 liquidation.

Most people do not understand that the means test applies only to those individuals whose debts are primarily consumer or household debts. Individuals whose debts are primarily business or investment related can file Chapter 7 without regard to means test qualification. Many individuals who seek Chapter 7 protection have incurred debts in connection with a failed family business or extensive losses in the stock market. These people are exempt from the means test. Professionals who seek bankruptcy protection primarily from malpractice judgments also are exempt from the means test.

If you are facing financial problems because of a business or investment reversal the new bankruptcy law has relatively little effect on your ability to file Chapter 7 bankruptcy.

posted by Jonathan Alper, asset protection and estate planning attorney, Orlando, Florida