Will we qualify for Ch 7?

[azpt22]

my wife owes about $200K due to a failed business. Around $120k is on credit cards, about $30K is taxes and the rest to vendors. Everything is under her name. I have good credit and have kept current on all my debt.... ie home loans, car loans, 1 credit card for about $1K. Here's what I think the problem is, I make $72K a year and therefore we are above the states median income of $63K. Is there any way around this? I don't think we want to file a ch 13!

[keepmine]

If over half the debt is nonconsumer {business} she is exempt from means testing.
Start speaking with some lawyers.

[azpt22]

Where does that leave us if we are "exempt from means testing." My income just covers our expenses. So maybe a ch 7?? Sorry if its a dumb question... i just started researching and found this board today!

[momofthree]

"Exempt from means testing" means that you automatically qualify for a chapter 7.

[azpt22]

I think our personal debt is around $210 or so. This means our debt is slightly higher then business debt. This includes mortgage, car loans, student loans, and my personal credit card. Can I pay down our personal debt before we file so that we qualify for ch 7 or is that preferential. I have always paid off MY personal credit cards. Its my wife's cards that were used to finance her business that are a month or two behind. Thanks for everyones help!

[justbroke]

You should get a spreadsheet, like I did, and actually list out the balances and add an indicator if it's Consumer or Non-Consumer. Also, if you used your consumer credit cards for business... that card magically becomes a non-consumer card.

Also, if you refinanced your home and used some of the money to pay for the business, at least that portion, and possibly the entire mortgage, becomes non-consumer.

Just work the numbers. You are close, but it only needs to be over 50% non-consumer to escape the dreaded Means Test.

[azpt22]

So as long as my business debt is more than my personal debt I can do a ch 7? Even though I am we are over the median income?

[azpt22]

Update on my numbers; business debt is around $300K including personal credit cards used for business exclusively, $70K from HELOC to fund business and around $28K in sales taxes. We owe about $230k in personal debt. Any way to get help or have HELOC discharged in ch 7? We have about $12K in business account and will get about $9K in tax return. Should we start paying sales tax or move the money into another exempt area like IRA's?

[justbroke]

So as long as my business debt is more than my personal debt I can do a ch 7? Even though I am we are over the median income?

Yes!

Any way to get help or have HELOC discharged in ch 7? We have about $12K in business account and will get about $9K in tax return. Should we start paying sales tax or move the money into another exempt area like IRA's?

You'll discharge your liability to pay the HELOC, but the lien will still be there. I don't know what you mean by start paying sales tax. Sales tax is non-dischargeable, so you don't want to get in trouble tehre.

[azpt22]

"You'll discharge your liability to pay the HELOC, but the lien will still be there."

What does this mean.

We will have some money in our personal account and our business account. Some will go to our attorney. We don't want to hold on to the rest in our account when we file because it would be non-exempt..... should be start paying down our owed taxes (sales tax from business)?

[justbroke]

You'll discharge your liability to pay the HELOC, but the lien will still be there.

What does this mean.

It means they still retain all their rights of foreclosure and for being paid when it's sold.

The strategy these days is to discharge your personal liability in the Chapter 7, and then to offer 5-10% buyout of the lien after discharge.

We don't want to hold on to the rest in our account when we file because it would be non-exempt

I didn't need to hear that.

..... should be start paying down our owed taxes (sales tax from business)?

You should work with your attorney about which priority debts to pay.

[MarieT]

You should get a spreadsheet, like I did, and actually list out the balances and add an indicator if it's Consumer or Non-Consumer. Also, if you used your consumer credit cards for business... that card magically becomes a non-consumer card.

Also, if you refinanced your home and used some of the money to pay for the business, at least that portion, and possibly the entire mortgage, becomes non-consumer.

Just work the numbers. You are close, but it only needs to be over 50% non-consumer to escape the dreaded Means Test.

Am I understanding that correctly...if we used our credit cards to pay for our business expenses, then the whole credit card is considered non-consumer? I thought it was the other way around...we actually opened one credit card with the idea of using it only for business and instead used it for business plus everything else. The other consumer cards plus the two lines of credit at our bank, we used for our business. Does that make it better for trying to do a Ch7?

[justbroke]

Am I understanding that correctly...if we used our credit cards to pay for our business expenses, then the whole credit card is considered non-consumer?

Yes, that's what it means.

I thought it was the other way around...we actually opened one credit card with the idea of using it only for business and instead used it for business plus everything else. The other consumer cards plus the two lines of credit at our bank, we used for our business. Does that make it better for trying to do a Ch7?

Once it's tainted by business debt, the entire card is considered business debt. Some Trustees will say that you need 51% of the debt on the card to be business... other Trustees will say the card is tainted once you start making business charges of any amount. Mostly because no one wants to go through line by line of charges to figure out the extent of business charges.

However, expect some pushback from the Trustee if it was a mixed use card. You'll have to find out how your District treats the debt (whether it's the 51% rule or the "single" transaction taints it rule).