Would I qualify for non-consumer debt Chapter 7?

[GoneBust]

I have been reading the forums for a few days, and I can't tell you how much relief I feel from finding out about a non-consumer debt bankruptcy. My bankruptcy attorney never told me that such a thing existed!

I have an SBA business loan with U.S. Bank for $86,000.00 and two Visa Platinum credit cards totaling $38,000.00 that were issued in my business name. I also have a Sam's Club credit card for $7,000.00 that was issued in my business name and used primarily for business purposes.

Other than that we only have about $35,000.00 in personal debt including an $8,500.00 balance on a repossessed vehicle, a $21,000.00 personal Visa card, and the rest miscellaneous credit cards.

Does it sound like we would qualify for a non-consumer Chapter 7? If so, I'm going to go ahead and file this week. This is great news!

[AngelinaCatHub]

Hey brother, if anyone can you should. WOW is my only comment. Attempt to fold all that debt together and then get a new start. You surely need it. 'Hub

P.S. here is a law blog on your question. http://www.expertlaw.com/forums/show...t=34128&page=1

Remember ours is the ONLY forum. LOL.

[jst4f]

It is my understanding that if 51% of your total debt is associated with business or investments then it is a non-consumer BK. If your attorney did not mention it, I would ask why he/she believes it is not a non-consumer BK. There might be something about your BK that you are not aware of that makes it a consumer BK. Depending on the answer, you will either file consumer BK, educate your attorney on non-consumer BK or find a more experienced attorney. I would want to know more before I file, just to be safe. Best of luck

[StrawberrySu]

Gone bust, I can tell you why your attorney probably didn't tell you ... he/she doesn't know. I have met with one attorney and an attorneys assistant (for my free legal consultation, thanks so much for that waste of time), and neither of them knew what I was talking about. The assistant outright argued with me that there was no such thing. I will be filing in a different state, and have to wait until closer to moving time to consult, and in the mean time am going crazy. Even the attorneys in the larger city I am moving to do not call it "non-consumer chapter 7", but they at least do it. Last Friday a ray of light finally shown on me, thanks to this board! I am pm-ing with someone here that is filing non-con 7 where I will be filing, and hopefully they will get back to me next week with attorney names they interviewed, and the trustee they had. I found out how much DMI they had, which was very reassuring.

My biggest question is if I will qualify, because my business debt is from two rentals, and I don't know if one rental will qualify. It was originally our home, and we refinanced right before renting it out. We had a VA loan, and we did an interest rate reduction loan. Usually with a refi or a new loan, you are required to live in the home for a certain period after the loan is given, like one or two years. Not so with a VA IRR loan, otherwise we could not legally have rented it out. So since I have been told the court looks at the intent of the loan, I am hoping it will qualify us. I just hope an attorney will be able to definitively tell me so. I am terrified of going in to bk court thinking I am non-consumer, with maybe $1500 DMI, then having the trustee decide the second rental doesn't qualify.

That's my story, but luckily, your situation looks pretty clear cut, I don't think you will have any problems. But I would definitely find a lawyer who know what you need to do. Good luck to you!

[StrawberrySu]

Oh, I should add, I am just a lost sheep, don't take my opinion on anything! The mods here or someone who has already been through it are the best way to go. Except keep in mind bk is federal in principle but local in practice, i.e. every bk court and trustee seems to march to their own drummer, lol.

[AngelinaCatHub]

Oh, I should add, I am just a lost sheep, don't take my opinion on anything! The mods here or someone who has already been through it are the best way to go. Except keep in mind bk is federal in principle but local in practice, i.e. every bk court and trustee seems to march to their own drummer, lol.

A little gift for you. Remember Easter, the Meek shall inherit the Earth. (song Rudy Valley 1927).

http://www.putnamcountycemeteries.org/Sheep.mp3

[GoneBust]

Thanks for the encouraging replies!

I just found this on Wikipedia:

Means Test

The most noteworthy change brought by the 2005 BAPCPA amendments occurred within 11 U.S.C. § 707(b). The amendments effectively subject most debtors who have an income, as calculated by the Code, above the debtor's state census median income to a 60 month disposable income based test. This test is referred to as the "means test". The means test provides for a finding of abuse if the debtor's disposable monthly income is higher than a specified floor amount or portion of their debts. If a presumption of abuse is found under the means test, it may only be rebutted in the case of "special circumstances."[7] Debtors whose income is below the state's median income are not subject to the means test. Under this test, any debtor with more than $182.50 in monthly disposable income, under the formula, would face a presumption of abuse.

Notably, the Code calculated income is based on the prior six months and may be higher or lower than the debtor's actual current income at the time of filing for bankruptcy. This has led some commentators to refer to the bankruptcy code’s “current monthly income” as “presumed income.” If the debtor's debt is not primarily consumer debt, then the means test is inapplicable. The inapplicability to non-consumer debt allows business debtors to "abuse" credit without repercussion unless the court finds "cause."

"Special circumstances" does not confer judicial discretion, rather it gives a debtor an opportunity to adjust income by documenting additional expenses or loss of income in situations caused by a medical condition or being called or order to active military service. However, the assumption of abuse is only rebutted where the additional expenses or adjustments for loss of income are significant enough to change the outcome of the means test. Otherwise, abuse is still presumed despite the "special circumstances."

Reference: en.wikipedia.org/wiki/Chapter_7,_Title_11,_United_States_Code

When I read about this non-consumer bankruptcy on this forum today, it was the first time I had ever heard of it! Looks like I will be educating my bankruptcy lawyer tomorrow - or getting a new one. That will be my qualifying question when I call around to different local BK attorneys - "Are you familiar with non-consumer bankruptcy?"

[momofthree]

Just to confirm: you do not have a mortgage or student loans, right? Those tend to be the "personal debts" that prevent many non-consumers from filing a non-consumer bk.

[StrawberrySu]

Yeah, Momofthree, you pointed out something I hadn't realized in the OP's first post .. no mention of a mortgage or of renting. Maybe he has a small mortgage?

Gone Bust, here is something I posted awhile back: (sorry couldn't figure out how to just post a link to my thread)

Interesting Non-Consumer 7 article from Bankruptcy Law Network:

Can bad faith or excess income be “cause” to dismiss a non-consumer Chapter 7 case?

by Dan Press, Virginia and D.C. Bankruptcy Attorney · Posted in * Business Bankrtupcy,*Chapter 7 Bankruptcy,For Bankruptcy Lawyers

As has been often explained, Chapter 7 Debtors with primarily business debt, or otherwise not primarily consumer debt, are not subject to the “means test” adopted in the 2005 bankruptcy reform act. In fact, they are not subject to any of the provisions of the Bankruptcy Code allowing Chapter 7 cases to be dismissed for “abuse.” Under Section 707(b) of the Bankruptcy Code, for consumer debtors, “abuse” is presumed if a debtor fails the means test, but a case can also be dismissed for abuse if the “totality of the circumstances” (generally speaking, excess disposable income with, or in some jurisdictions without, other factors) shows “abuse,” or if the “petition was filed in bad faith.”

None of these provisions apply if the debts are not primarily consumer debts, such as business debts, tort claims, and tax liabilities. In those cases, only Section 707(a) applies, permitting dismissal “only for cause.” ”Cause” is not defined, but the Code gives three examples: “unreasonable delay by the debtor that is prejudicial to creditors,” nonpayment of any required court fees, and failure of the debtor to file required documents.

So what is “cause,” other than these three, largely procedural, categories? The courts disagree.

The 9th Circuit Court of Appeals has held that if there is another Code provision that addresses the subject matter of the alleged cause, then it is not “cause” for dismissal under § 707(a).[1] Because Congress included both excess disposable income and bad faith under § 707(b), but limited them to consumer cases, neither bad faith nor excess disposable income can constitute cause for dismissal of a non-consumer case. The 8th Circuit also held that bad faith is not “cause.”[2]

The 6th Circuit, on the other hand, held that bad faith can be “cause,” but cautioned that it must be “generally utilized only in those egregious cases that entail concealed or misrepresented assets and/or sources of income, and excessive and continued expenditures, lavish life-style, and intention to avoid a large single debt based on conduct akin to fraud, misconduct, or gross negligence.”[3]The 3rd Circuit agreed, but held that while income and expenses can be considered, “a debtor’s ability to repay his debts out of disposable income is not a sufficient reason to dismiss a bankruptcy petition under section 707(a).”[4] At least one bankruptcy court in Michigan (in the 6th Circuit) has found that merely having excess disposable income — albeit substantial in that case — is enough to dismiss a case for cause.

So, if you have non-consumer debts but excess disposable income or other indicia of bad faith, are you safe in filing Chapter 7? Apparently, the only answer is “it depends.” It is clear that you have a big advantage over consumer debtors, but how much of one will depend on where you file. Even in courts that have allowed bad faith to be treated as “cause,” the standards being applied are inconsistent. Courts have referred to lists of between four and fourteen factors to consider, and have referred to these by names such as the “smell test.” At least one court has compared the lack of clear standards to Justice Stewart’s definition of obscenity: “I know it when I see it.”

The best approach in every case is to avoid doing anything other than having high income that could be considered bad faith. Make sure that your petition and schedules are scrupulously accurate. And work with an experienced bankruptcy lawyer who can guide you through the process.

[1] Sherman v. SEC (In re Sherman), 491 F.3d 948, 970 (9th Cir. 2007); Neary v. Padilla (In re Padilla), 222 F.3d 1184, 1193-94 (9th Cir. 2000).

[2] In re Huckfeldt), 39 F.3d 829, 832 (8th Cir. 1994)

[3] In re Zick, 931 F.2d 1124, 1129 (6th Cir. 1991)

[4] Perlin v. Hitachi Capital Am. Corp. ( In re Perlin), 497 F.3d 364 (3d Cir. 2007)

Hope I did this correctly, and gave proper credit.

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[GoneBust]

I wasn't even thinking about this because we were planning to reaffirm on our home mortgage, so I didn't include it in my list of debts above. We owe $250,000 on a home that is worth $320,000.00. I guess that would push us over into having primarily consumer debt. However, we could probably sell the home pretty fast. We owe the IRS around $30,000.00. If we sold the home and paid off the IRS it would pretty much eat up whatever equity we have in the home after we pay realtor fees.

Should we just file the bankruptcy and let the chips fall where they may, or should I try to sell the home before we get any judgments against us? I'm thinking if we just filed a normal consumer bankruptcy we may end up walking away still owing the IRS over $30,000.00. Due to our $80,000.00+ annual income for a family of four in Illinois we may even get forced into Chapter 13, which I would rather avoid if possible from what I have read on here.

This is such a nightmare. For the past few weeks I have been debilitated with stress thinking about all of this, and I hardly get any work done at my business because of it.

What would you do if you were me?

Thanks!

[daylate]

GB- I think you need to research some more and interview some attorneys. Don't just do it and let the chips fall. You could get royally screwed. I know of no specific reason but I think in your situation you should definitely play out all your options on paper and see which is best for you. Good luck.

[HHM]

Regardless of your intent on the mortgage on your primary residence or taken out as a owner-occupied declaration mortgage, COUNTS as consumer debt. Sorry, sounds like you are hosed for doing a non-con-chap 7.

But given your overall debt load I don't see how you avoid BK unless you want zero quality of life going forward.

[GoneBust]

Regardless of your intent on the mortgage, it COUNTS as consumer debt. Sorry, sounds like you are hosed for doing a non-com-chap 7.

But given your overall debt load I don't see how you avoid BK unless you want zero quality of life going forward.

Our family has had zero quality for the past 2-3 years ever since the economy collapsed. I've been working 16-hour days 6-7 days a week and I push myself to stay awake to get work completed so we don't lose our home or the one vehicle we have left. Not to mention my 16-year-old daughter who has Asperger's Syndrome and the toll that takes on our family.

I feel beaten and my memory is not very good anymore due to all the stress hormones washing through my brain constantly. I am surprised I haven't had a breakdown yet. I am still as perplexed as ever on what I should do. I had a moment of joy yesterday thinking I could qualify for non-consumer, but now it's back to Gotham City again.

Would any of you consider trying to sell the home to beat the judgments if you were in my shoes?

[IamOld]

GoneBust I'm so there with you my friend. I've got a few PT jobs and for a few months I left home at 6AM to return at 10pm four days a week, plus working from home most Fri nite and Sat, sometimes even Sun. Ironically, because I was working to try to pay the cc's etc., made too much for Cha 7 (for now!) so spouse just filed for Ch 13, and I am an absolute nervous wreck. If it weren't for the people here on this forum, I honestly don't know what I'd do. Memory is crap here too.
I just want to shield my kids as much as I can.

Our atty is not great on the emails, but practicing for 20 years, one of the partners is a Ch 7 trustee, he knows "stuff!" And he HATES banks/credit card co's with a passion.

At any rate, my house is underwater but mort is less than rent. So there is that.

NOW - if I were you, I would probably sell the house BUT BEFORE you do that, make sure you can get a nice rental!!! IF you can sell the house, just make sure that it goes to pay "exempt" stuff, like IRS, rent, etc. PLEASE PLEASE PLEASE consult with good lawyer also. BY the way, one thing I think I do know, is IRS/tax debt isn't counted as CONSUMER debt, as you had no choice to owe that...I wish I had the cite but I don't...Bottom line PLEASE talk to lawyer.

I wish I had done that when we started drowning - instead of braking my rear end - which for BK turns out to be counterproductive - we had gone to this lawyer -we would have had a "nice" Ch 7 and been done by now :-) Oh well.

BUT - BUT if you can rent a nice place cheaper especially and if you CAN sell your house...well then...

Our family has had zero quality for the past 2-3 years ever since the economy collapsed. I've been working 16-hour days 6-7 days a week and I push myself to stay awake to get work completed so we don't lose our home or the one vehicle we have left. I feel beaten and my memory is not very good anymore due to all the stress hormones washing through my brain constantly. I am surprised I haven't had a breakdown yet. I am still as perplexed as ever on what I should do. I had a moment of joy yesterday thinking I could qualify for non-consumer, but now it's back to Gotham City again.

Would any of you consider trying to sell the home to beat the judgments if you were in my shoes?

[debee]

I would confirm the value of your house before deciding whether to sell it. Also, the sale proceeds up to your exemption amount are exempt for a year. 15K if single, 30K if married. So time your bk filing accordingly if you determine you need to sell. Personally, I would do everything legally possible to protect my assets (and keep every penny if I could swing it) and take care of the creditors in the chapter 7.

Depending on the age/type of tax you owe, you might be able to discharge it in a chapter 7 too.