There’s a way around the means test. And it’s right there in the Code. Yet we forget.
The ***x!!XXX thing only applies to debtors whose debts are primarily consumer.
Consumer debt is defined:
8) The term “consumer debt” means debt incurred by an individual primarily for a personal, family, or household purpose.
I had to review what isn’t consumer debt the other day to extract a client from the clutches of the means test.
If the debtor operated a business, the unpaid debts from the business are not consumer debts.
Taxes aren’t consumer debts. The cases seem to focus on the fact that one does not choose to incur a tax. A tax is imposed. So, it’s not consumer debt. (Consider whether that dividing principle, “imposed”, might allow you to classify unpaid property taxes on a home as a non consumer debt).
Torts aren’t consumer debts, presumably again, because one doesn’t usually elect to incur this kind of debt.
Cases pretty uniformly hold that a home mortgage is a consumer debt, and that the character of the debt is determined when it is first incurred. So, the former family home that is now a rental may be a consumer debt if the loan is the one that enabled the purchase.
Ticking down the checklist
I almost missed the escape hatch on this case. The client had a rental property. Mortgages are usually consumer. Bummer.
But inquiry disclosed that this property had always been a rental! Bought to generate income!
Voila. The hundreds of thousands in outstanding mortgage debt just became non consumer, and it was enough to tip the scales to debt that was not primarily consumer.
And when I added in the business premises lease that the client was breaching, I was comfortably beyond the clutches of the means test.
Score one for the good guys.
Image courtesy of ndanger.