Is Means Test Required For Primarily Business Debt Bankruptcies?

A frequent cause of Chapter 7 bankruptcy is using credit cards to finance the start a small business that ultimately fails. The business owner is left with reduced income from the unsuccessful business and a mountain of credit card debt used to support the business. The means test applicable to Chapter 7 bankruptcy applies to debtors whose debts are primarily consumer debts. Debtors facing insolvency because of business debts do not have to pass the means test in order to qualify for Chapter 7. A separate question is whether these debtors have to go through a means test analysis and file the means test results. Is a Chapter 7 bankruptcy subject to dismissal for failure to file a means test even though debts are primarily business debts and the means test results are inapplicable to the debtor’s eligibility for bankruptcy.

This issues was addressed to me by a bankruptcy judge. My client’s debts were almost exclusively business debts, and we did not file a means test analysis. The court initially dismissed the case for failure to comply with filing requirements.. In this case, the court allowed my client to reinstate his bankruptcy subject to filing a means test analysis. The judge did not issue a ruling on the issued posed above but said that it was an interesting issue and pointed out that two bankruptcy courts in Texas have ruled that filing a means test analysis is required in all Chapter 7 bankruptcies whether or not debts are primarily consumer debts.

posted by Jonathan Alper, bankruptcy and asset protection attorney, Orlando, Florida