Means Test Exception – Business Debt

Means Test Exceptions

Means Test Exception – Business Debt

If you are thinking about filing for Chapter 7 bankruptcy, you need to qualify by passing the Means Test. There are two exceptions to the means test. The first one we will discuss today is the business debt exception. Stay tuned to our next blog for the other exception.

What is the Means Test

The Means Test is a way for the Court to determine if you qualify to file a Chapter 7. The idea is if you make too much money, you can’t just get rid of your debt but instead you should pay back all or a portion.

The test begins by looking at you family’s total gross source of income for the six months prior to filing for bankruptcy. Ex: If you file bankruptcy in July, we look at your gross income from January through June. We add the six months together, average it, then annualize. We compare your annual income to the median income for what your family size is. Median incomes depend on what state you live in and can be found here.

If you make less than the median income, you qualify to file Chapter 7 bankruptcy. If you make more,  the long form version of the means test must be conducted. The long form means test takes into consideration taxes and IRS set typical living expenses for your area.

Business Debt Exception

The exception to the means test, your debts are primarily business related!  Most people have consumer debt and so they must pass the test discussed above.  For some, whose debt is incurred from trying to start a business, you can make more than the median income, fail the means, and still file for Chapter 7 bankruptcy!

This is a very powerful exception and illustrates Congress; intent on encouraging business development.

If you think you fall into this exception, call us at Seneca Law today for a free consultation!!

**This blog is general information and does not constitute legal advice or create an attorney client relationship.

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