Chapter 7 Bankruptcy provides nearly one million debtors each year with the relief they need from overwhelming debt. Whether or not Chapter 7 Bankruptcy is the best option for you depends on a number of considerations. During your initial consultation with one of our MN Bankruptcy Attorneys we will get to know you and your situation. We will ask a number of questions to fully understand the situation you’re confronted with. After getting to know you and your situation, we will provide you a recommendation on how we think you should move forward. In this blog, we’ll discuss what Chapter 7 is, Chapter 7 filing requirements, and the Business Debt Exception to the Chapter 7 Means Test.
The Bankruptcy Basics
Chapter 7 Bankruptcy is also referred to as the “fresh start” bankruptcy. By means of filing for Chapter 7 relief, you may potentially be able to avoid your liability on most debts. Through this avoidance, we can help you break free from your debts; forever! In other words, if you have consumer debts (credit card debts, medical bills, personal loans, etc.) and the debt is simply too much for you to financially control, Chapter 7 may be able to help you eliminate your responsibility to pay back those debts. The best part? These debts go away forever! Yes, forever!
Qualifying For Chapter 7
Now that you’ve set your eyes on your new life, free from debt, let’s discuss the requirements that must be met in order to file and receive a discharge in your Chapter 7 Bankruptcy. The main focus is on your income. To qualify for Chapter 7 you must make less than the median income in the State of Minnesota for your family size. If your income matches the median, or you make slightly more, there may be an option to still file a Chapter 7. In Chapter 7 bankruptcy there is an assessment used to analyze your monthly expenses. This assessment is referred to as the Means Test. With the Means Test, we can sometimes use it to help people who would otherwise not qualify for a Chapter 7, qualify. Necessary, but unordinary, expenses can be used to justify the need to file a Chapter 7 when an individual’s income is higher than the state median. So, for example, if you make the same as, or more than, the median income in Minnesota, but make monthly child support payments (as one example), we may be able to still file a Chapter 7. This area of the law can get very confusing, so please contact one of our MN Bankruptcy Attorneys if you have questions about your eligibility to file a Chapter 7 based on your income.
THe Business Debt Exception
Another way to qualify for Chapter 7 Bankruptcy, regardless of your income, is by way of the Business Debt Exception. The Business Debt Exception is designed to provide relief to debtors who accumulated unmanageable debts as the result of a failing/failed business. In order to avoid the Chapter 7 Means Test by way of the Business Debt Exception, a debtor must prove more than 50% of their debts arise from business. This may or may not be a difficult burden.
When thinking about the difference between business and personal consumer debts, it’s a good idea to remind yourself of the original purpose behind acquiring the debts you have. For example, say you have $300,000 in business debts. Let’s also say you, personally, have a $400,000 mortgage on your homestead. Accordingly, you have a total of $700,000 of debt. Only 43% of your debt is business-related. In this example, you would not qualify for the Business Debt Exception to the Chapter 7 Means Test because your business-related debts do not account for more than 50% of your total debt.
Qualifying for the Business Debt Exception to the Chapter 7 Means Test can be tricky and requires strict attention to the type of debts you have. On occasion, some of your debts that appear to be consumer debts may, after all, be business debts. Arguably, one area that can be considered business-related is investment properties. If you purchased real estate with the intention of renting the property and appreciating profits as a business entity, it can be argued the mortgages associated with those properties are business debts. Like I said, this can be questionable and requires the qualified experience of our MN Bankruptcy Attorneys.
Filing With Good Faith
There is another hurdle that has to be cleared when considering the Business Debt Exception. In order to use this exception, a debtor must file their case in accordance with Good Faith requirements. All bankruptcies must be filed with Good Faith. What this means is, a debtor must file their case with honest intentions, and must not have engaged in fraud. As it pertains to the Business Debt Exception, good faith implies honest accounting of business vs. personal debts, and an honest accounting of your monthly income.
When filing your petition, you must account for your income and necessary monthly expenses. If you try and use the Business Debt Exception in a Chapter 7, you must prove you do not have the ability to pay back your debts. So, if you make a lot of money, you will have to prove your necessary monthly expenses (rent/mortgage, utilities, food, etc.) offset your income. This is where good faith comes into play. You must accurately disclose your necessary monthly expenses. If we run the numbers for your monthly budget and you have a surplus, we may not be able to file a Chapter 7.
Get The Representation You Deserve!
When considering the Business Debt Exception in a Chapter 7 Bankruptcy, it is imperative you consult an experienced MN Bankruptcy Attorney. We have more than 40 years of experience in bankruptcy law and guarantee you receive the representation you deserve. More than that, we guarantee you are treated the way you deserve. We will never judge you. We will help you get your life back!