Why Having Business Debt Can Help You File For Bankruptcy
When we incur debt, we rarely think about whether the debt is commercial or consumer related. In most cases, it doesn’t matter to us—all that matters is how much we’ve borrowed and how much we owe. But in the world of bankruptcy, classifying debt as one or the other, can affect your bankruptcy case.
Passing the Means Test
If you file for Chapter 7 bankruptcy, you will have to pass the means test in order to be eligible to file for Chapter 7 bankruptcy. If your income is low enough, it may not matter what kind of debt you have—your income may be low enough that you pass the means test anyway.
But many middle-income debtors find that they are just on the cusp of passing the means test, or that they make too much money to file for Chapter 7. Some may make too much for a Chapter 7, and too little to file for Chapter 13, which requires that you earn enough money to pay a plan.
However, if your overall debt is more commercial (business) than it is consumer debt, you don’t have to take, or pass the means test—you automatically qualify to file for Chapter 7 bankruptcy.
Which Debt is Which?
Some courts will look at the number of debts, and some will look at the total amount of debt to see whether your debt is “overall” or a majority consumer or commercial, but either way, having commercial debt can assist you in being able to file for Chapter 7 bankruptcy.
A benefit of consumer debt is that you have numerous protections from federal consumer protection laws, that you often don’t get with business loans.
Of course, you may be wondering what the difference between what these loans actually are.
Consumer debt is generally for personal, home or family purposes. Some debt is clearly personal. Goods, vacations, fun items, electronics, or any expenses that are not for business purposes, can be considered consumer.
Medical debt is also often considered consumer debt.
Business debt can be anything incurred for any type of business purpose—and no, you don’t actually have to own or have incorporated a business, to have business debt. Some courts call any debt that isn’t voluntarily charged (such as taxes) to be business debt.
Casual investors who buy a property and rent it out can have business debt, as could, for example, someone who casually takes photographs and sells them. So long as the debt is related to, or incurred for the purpose of making money, it can be considered business debt.
Even student loans can be considered business debts to some courts.
Personal guarantees can be considered business debt, if the guaranteed debt is related to business purpose.
Sometimes, we make personal and business charges on the same card or account. Your bankruptcy lawyer may have to review your statements, to see which is for which purpose.
Let us look at your debt and determine what kind of bankruptcy is right for you. Contact the Boca Raton bankruptcy attorneys at the Law Offices of Stephen Orchard at 561-455-7961 today to help.