Chapter 7 caused by business debt - high non business disposable income

[badbusiness]

My business has been badly hit by the recession leaving me with unsecured business related debt of $550,000. As this debt was backed by a personal guaranty, my attorney has advised that I file for a Chapter 7 personal bankruptcy. My personal debts are house and car totaling $315,000. My non business related income is approximately $185,000. Due to this income I am concerned that my Chapter 7 will be dismissed and I will be pushed into Chapter 13. Does anyone have any experience with a similar situation?

[AngelinaCatHub]

I'm not sure what you mean by non business income? Stocks, bonds? When you do a 7, you are destitute and once filed legally all you own belongs to the estate and controlled by the Court. Even though your business has a big time deficit, you have a big time income. Perhaps a C11 or if you are incorporated that may protect you. You stated a personal guarantee? Not good. I think you will have to either bite that bullet, or go 13. I'm not a lawyer, only know what I have seen read and experienced. My advice is check several lawyers and if anyone of them can scoot you by, then go for it. C7 is in my opinion, the last ditch effort for a new start. Your description implies that you are far above a last ditch until you resolve your business debt. You are far better off than most of us were and are. I lost 10 mil in my bk on paper, but I am pleased with the situation I have accepted. I wish you good fortune, my friend. 'Hub

[badbusiness]

Apologies, I should have been more specific about "non business related income". As the business declined during the recession, I took another job in a different field while continuing to try and keep the business running by working nights and weekends. My Attorney initially felt that I could get a Chapter 7 but after filling in Schedules I & J, seems to be having second thoughts. I am using my income to pay off the second mortgage I took on my house to fund the business operations.

[AbbeyA]

I think your attorney is talking about you filing a non-consumer chapter 7 bk. I am not an expert by ANY means, but if your debts are primarily business debts (personal guarantees on business loans), than I don't think you need to pass a means test. The means test is for chapter 7 filers who are filing consumer bk cases (cc debt, mortgages, medical debt. etc...) One of the lawyer moderators should be able to chime on on this one with respect to your high income and the ch. 7 filing. We file a non-consumer ch 7 bk after a business failure -- it was not a fun situation. Make SURE that your attorney is used to dealing with business debts/banks with deep pockets. If he/she doesn't have experience with non-consumer filings, find someone else. Good luck to you!

[justbroke]

As a non-consumer filer with significant income, the key is what your Schedule I&J is telling you. Please know that the Means Test doesn't apply to the non-consumer filer. There is no "presumption of abuse" and no magic $109.58 or $182.50 number for your disposable monthly income. Some non-consumer filers have had as much as $1,000 in positive disposable monthly income (DMI) and received a discharge.

The real key is getting an attorney who really understands non-consumer filings, and has done more than a few of them! I would still try to keep DMI low, but it doesn't really need to be below the magic $182.50 number. Your attorney and your strategy is what is key.

[backtoschool]

Even if you pass the means test due to over 50% of your debt being business debt (not sure it is over 50%), your salary will target you for a totality of circumstances dismissal by the US Trustee. With that salary it will be very difficult to prove to the US trustee that you cannot fund a chapter 13.

[badbusiness]

I should start by saying I have learnt more from this Forum than from my Attorney and am very grateful for all the posts that have educated me.

I met with my Attorney 3 times last week and am not able to get a clear answer. The broad game plan seems to be

- file Chapter 7 due to non consumer debt
- If it works then I am done with this (other than paying of the second mortgage I took for the business)

- If the UST decides that the high DMI is “abuse”

What do I do?

I cannot afford a Chapter 11 nor is there any immediate hope for the business.

I do not seem to be allowed to file under Chapter 13 because:

"Any individual, even if self-employed or operating an unincorporated business, is eligible for chapter 13 relief as long as the individual's unsecured debts are less than $360,475 and secured debts are less than $1,081,400. 11 U.S.C. § 109(e). "

I am not really sure where to go from here?

[backtoschool]

Is there anyway to get your income down as you plan for filing? The lower your income is, the better chance you will have of having your chapter 7 not dismissed for totality of circumstances.