How To Brush Off The Means Test

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.

Debts excluded

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.



  1. Kathy,

    Don’t forget the military exemption. If the debtor is a disabled veteran (PTSD is a disability) and the debts were incurred priprimarily during a period of active duty then the means test does not apply. So lets say Jack goes off to war and leaves Diane home with the kids. Because she now has expenses she didn’t have prior to the deployment, she pulls out her Mastercard and charges up the debt. When Jack comes home disabled and they are under the gun by collectors, Jack can now use the Veteran’s Declaration. I’ve used this once in my seven year career but I think we’ll see more of it as our troops return home.

    • CathyMoran says

      Good thinking. I haven’t encountered it in real life yet. I practice in Silcon Valley where we have far more business failure than returning troops.

      Does active duty mean “deployment in a war zone” rather than just being a quartermaster at a stateside base?

  2. I went to three different “experienced” bankruptcy lawyers before I found the one that knows what is stated here (and one even worked for the local Ch. 7 trustee). Had I taken their advice and not “known” something wasn’t right with what they were telling and kept searching, I’d be broke and facing judgments and garnishments today. Finally, on the third try, I found an attorney (Cindee Dale Holmes) that realized that I was exempt from the means test because my debt was from investment properties that had gone south in the real estate collapse. I kept my six figure income, my 100’s of thousands in (ERISA) retirement, my (investment) lake house, my boat, my paid-for car, and a rental house. I unloaded five properties that had become zero or negative equity in the crash.
    Thank goodness someone out there is telling folks the means test is not the end of the world – there are exceptions and ways to work it.

    • The means test is a flawed tool that uses a rigid formula to solve a problem that didn’t need solving. Sigh.

      Bravo for shopping for a capable lawyer and a shout out to Cindee who got it right.

  3. What about the balance due on a business lease that ISN’T being breached?