Means Test Alternative

As a Tampa bankruptcy lawyer, many of my clients who call me want to know if they can file a chapter 7 bankruptcy or if they need to file a chapter 13 bankruptcy. I explain to them that in most cases, a chapter 7 is much more favorable because it takes about 4-5 months to complete as opposed to a chapter 13 bankruptcy which takes about 3-5 years to complete.

As part of my free over the phone consultation with my clients, I often go over a few items with them to figure out if they are eligible for a chapter 7 bankruptcy. Certainly, the most important numbers are their income numbers for the past 6 months which I use to calculate whether they are below the median income.

Often times, potential clients will be above the median income in Florida and even do not pass the means test, but all hope is not lost. I then check whether they are a non-consumer debtor. This may often be overlooked by bankruptcy lawyers but can play a big role in saving you years and a lot of money in bankruptcy.

As a non-consumer debtor, you do not even have to pass the means test to be eligible to file for a chapter 7 bankruptcy. So what is a non-consumer debtor? This is any type of debtor in which 51% of their debts are non-consumer debts i.e. from business or investments.

Examples

An example which can illustrate this, let’s say you have $40,000 of credit card debt. You are self-employed and $21,500 of this was incurred as part of your business. Since 51% of your total debt is non-consumer debt you qualify for a chapter 7 bankruptcy even though you may have flunked the means test.

Another example would be let’s say you own a home that has a $200,000 mortgage and you have $50,000 of credit card debt. You also own an investment property that has $251,000 mortgage. Since your business debt from your investment property is more than 50% than your consumer debt of your home mortgage and credit cards then you are eligible for a chapter 7 bankruptcy, even though you may have failed the means test.

Summary

Checking whether your business debt is greater than your consumer debt is an often overlooked part of figuring out whether a client can file for a chapter 7 bankruptcy. As a Tampa bankruptcy attorney, this as well as many other questions, are part of my over the phone consultation to determine whether you qualify for a chapter 7 bankruptcy. If you would like to speak with me about your situation you may give me a call for my free bankruptcy phone consultation.

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