When Can Debtors Avoid The Bankruptcy Means Test?

Avoiding The Bankruptcy Means Test

Not everyone is required to take the bankruptcy means test.  If a debtor has primarily business debts or their household income is below their state’s median household income level, then they don’t need to take the means test.

What Are Business Debts?

Business debts are debts which were incurred due to business expenses.  For example, if a bankruptcy debtor took out a loan to purchase equipment for their company then that would be considered a business debt.  Also, if a debtor used their credit card to purchases business supplies, the debt on that credit card might fall into the business debt category in bankruptcy.  However, even if a debtor worked out of their home, they would not have the right to claim their mortgage as a business expense. On the other hand, if the debtor purchased a building for their business, the debt associated with that building could fall into the business debt category in bankruptcy.

What Percentage Of Debts Must Relate To Business?

If a debtor’s business debts make up 50 percent or more of their bills, then they can avoid taking the bankruptcy means test as long they meet other criteria such as having an under-median household income.

What Are Consumer Debts?

Consumer debts could include a mortgage, utilities, credit cards or a car note.  But for the purposes of fling bankruptcy and taking the means test, a credit card or a car used for business might be considered non-consumer debt.

Other Means Test Waivers

Some disabled veterans considering bankruptcy may avoid the means test if their debts were mostly incurred while on active duty. Speak with your bankruptcy attorney to find out if your circumstances allow you to avoid the means test.