With many people around the country struggling to secure employment through traditional routes, it is not uncommon for a client to come into my office after trying to start his or her own small business but unable to make it successful. Whether your business was in operation for a few days or a few decades, people need to know that filing personal bankruptcy does not discharge the business debt; it allows the business owner to discharge his or her personal obligation to pay the business debt.
One of the immediate benefits of filing a Chapter 7 bankruptcy is that as long as more than half of your debt is business-related, or non-consumer debt, you will not have to concern yourself with the bankruptcy means test. The means test was created as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), intended to reduce abuse of the system by preventing debtors with high incomes from filing for Chapter 7. As long as a majority of your debt is not consumer-related, it also means that you will not have to worry about the means test affecting your ability to file Chapter 7.
However, there are still a number of other factors that could affect your debt being discharged through a Chapter 7 bankruptcy, such as whether a venture was financed on personal credit cards or corporate credit cards through an LLC created by the client. Additionally, even in a case where a business debt exemption from means testing is not an issue, the United States Trustee will still be seeking any legal way possible to force the debtor to file Chapter 13, where unsecured creditors will be paid back some or all of the debt. Over the next couple of days, I will discuss the types of debt that are considered consumer debt and non-consumer debt, the effects of personal guarantees, and why in many cases, Chapter 7 is the best way for clients to receive a fresh start.
