Legal Question in Bankruptcy in Wisconsin

I understand that if the majority of your debt is non-consumer - that you can waive the means test for Chapter 7. Here's my question - I left a job that paid 6 figures to open my own company with 2 partners. To fund the business - I chose to take no salary until we made a profit. Two years later I had $200,000 of CC debt and no taxable income. I'd like to make the case that the $200,000 is not Consumer Debt since in effect, I was simply putting money into the company and taking a payroll - without actually doing that. I can prove via my tax returns that I had no income and that I had little to no CC debt prior to going into business. Will the courts view my CC debt as business debt and allow me to waive the Means Test?


Asked on 11/01/11, 6:57 pm

1 Answer from Attorneys
JAY Nixon nixon law offices

Bankruptcy law changes in October of 2005 limited chapter 7 discharges for debtors whose income exceeded the state median income (computed by family size). This complex formula is also known as the "means test," and those who fail it are sometimes forced into chapter 13, where even higher income families can still get a discharge if they pay a portion of their debts over three to five years. You are correct that section 707 b) applies this "means test" only in cases of "primarily consumer debt." This suggests that business debtors can avoid facing this problem and can still remain in chapter 7 even if their incomes are higher than average. However, in your case, you may not even need to worry about this. Since you say that you have had little or no income for the last two years, you would certainly be below the state average, regardless of whether yours was a consumer or a business bankruptcy. And, even if your income was above the average, many other payments on secured debt, mortgages and student loans can sometimes be taken "off the top,� thereby allowing one to pass the means test despite the higher income. For this reason, the means test is often a "paper tiger" for many bankruptcy clients; turning out not to present any problem once all of these calculations are properly completed. Either way, if you are facing the level of financial problems which you describe, you owe it to yourself to discuss your case with an experienced bankruptcy lawyer. My comments in this public web forum are intended only for public educational purposes and are not legal advice specifically tailored to you and your case. Instead, you should retain a lawyer in order to meet your legal needs, since I will be taking no action on your case. Disclosure of confidential information in a public web forum is not recommended and is always subject to being used against you in court. You are welcome to contact my Racine, WI office at 262-633-3090 or email me at [email protected] for further information.

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Answered on 11/03/11, 12:45 pm


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