Debtor’s Non-Consumer Debts May Bypass Means Test

To qualify for filing Chapter 7 bankruptcy the debtor’s household income must be below the applicable median income, or the family expenses must offset income to the extent that the debtor passes the means test. Bankruptcy debtors do not have to pass the means test if their debts are primarily non-consumer debts.

Bankruptcy income and expenses is computed for the entire family and not just the debtor; what about the calculation of consumer debt and non-consumer debt? A new client called me this week because another bankruptcy attorney told him he could not file bankruptcy because his family income was too high. The attorney also told him that he was not exempt from the means test because family consumer debt was higher than non-consume debt.

I disagree. I believe that whether the debtor bypasses the means test based on non-consumer debts is determined for the debtor alone, and the calculation does not include the debts of non-filing members of his household (family).

In this case, the debtor had substantial credit card debts in his own name. He incurred the credit card debt in order to pay the ongoing expenses of a failed business venture. He was married. He and his wife owned jointly a homestead property. His wife was a well-paid professional engineer. The wife qualified by herself for the mortgage, and the mortgage note was in the wife’s name alone. Also, the family’s two cars were financed by the wife.

If the husband files bankruptcy the means test would include his wife’s income. The household income would far exceed means test eligibility. However, because the debtor is not liable on the family’s primary consumer debts (mortgage and cars) I think the husband would qualify for Chapter 7 bankruptcy because his scheduled debts were incurred mostly for business purposes.

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