As much as the means test is a pain in the neck, why don’t more bankruptcy attorneys skip it?
Finding that your client’s debts are not “primarily consumer” is an instant, get-out-of-jail-free card.
If you can check the B-22A box that the debts are not primarily consumer debts, you get to skip the rest of the miserable form.
Let’s revisit the statute: §707(b)(1) starts out providing that the court may dismiss a case “filed by an individual debtor…whose debts are primarily consumer debts…” That’s the foundation for the means test and B-22.
If the debts are not “primarily consumer” debts, then your client’s case can’t be dismissed under this section. Pretty strong hand, right?
The Code defines consumer debt as “debt incurred by an individual primarily for personal, family, or household purposes”. Section 101(8).
For me, it’s easiest to list the things that aren’t consumer debts
- Business debts
- Debts in general incurred with a profit motive
- Tort debts
There are two theories operating here as to why a debt isn’t a consumer debt. One is found in the tax debt cases, holding that one doesn’t decide to incur a tax, it’s imposed upon you. Therefore, it isn’t a choice.
[Remember that the means test is a penalty to be inflicted only on the consumer who makes bad choices. Somehow, those who fail in business or choose not to pay taxes aren’t subject to the means test indignity. But there, there, my ire is showing.]
The second discriminator is the presence of a profit motive: investment property, trade debt, stock margin debt.
The character of the debt is determined when that debt is incurred, says the majority position on the issue.
So, the former family home, now a rental, is encumbered with consumer debt, since it was incurred, in the first place, for household purposes. Consider, if you’re feeling argumentative, whether that character changes if the house has been refinanced after it became a rental. I haven’t seen cases, but I haven’t yet looked.
In the case of the small business owner, this may require that you sort credit cards into those used for business and the personal cards. If the client is undisciplined in the division, you may have to analyze the usage of each card, if finding more business debt is critical to your escape from means test jail.
Image courtesy of Mark Strozier.