Chapter 7 Bankruptcy Eligibility: Businesses Versus Individuals
There are many different types of bankruptcy. Certain types of reorganization bankruptcy are designed solely for businesses, and can be filed only by businesses in some cases. For example, Chapter 12 bankruptcy is solely for specific types of businesses (businesses of family farmers and fishermen). At the same time, certain types of reorganization bankruptcy are designed solely for individuals and can only be filed by individuals. For example, Chapter 13 bankruptcy is only for individuals and not for business entities. In some cases, there is some crossover. Chapter 11 bankruptcy is primarily filed by businesses, but in certain situations where an individual cannot qualify for Chapter 13 bankruptcy, they will file for Chapter 11 bankruptcy instead. Yet, for the most part, Chapter 11 is filed by businesses.
What about Chapter 7 bankruptcy? This is a type of bankruptcy that is commonly filed by both individuals and businesses. Yet there are key distinctions between these types of bankruptcy cases filed by individuals versus businesses, including eligibility. Our West Palm Beach bankruptcy lawyers can explain.
Primarily Business Debt Does Not Require Passing the Means Test
Generally speaking, Chapter 7 bankruptcy cases that involve primarily business debt do not require proof of eligibility as cases involving consumer debt do. Accordingly, if a partnership, limited liability company (LLC), or corporation plans to close and to liquidate assets in seeking Chapter 7 bankruptcy protection, the business does not need to prove that they are eligible to file a Chapter 7 bankruptcy case.
Differently, individuals or consumers typically must prove that a liquidation bankruptcy would not be abusive according to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). An exception can be where an individual is a small business owner and is planning to file for Chapter 7 bankruptcy primarily in relation to business debt. However, generally speaking, in order to prove eligibility for Chapter 7 bankruptcy, an individual typically must pass the “means test.”
Primarily Consumer Debt Requires Passing the Means Test
Even if an individual is a business owner but has mostly consumer debt, that debtor will need to pass the means test. Depending on your specific financial circumstances, you may need to fill out only one form, or you may need to fill out forms and go through a process known as the Chapter 7 Means Test Calculation.
Most individuals planning to file for Chapter 7 bankruptcy start by filling out Form 122A-1, which can show whether or not the individual has an income that is below the state median. If this is the case, the individual qualifies for Chapter 7 bankruptcy and does not usually need to go further to prove eligibility. If the debtor’s income is not below the state median, then they will need to complete Form 122A-2, which is the Chapter 7 Means Test Calculation.
Are there any individuals with primarily consumer debt who do not need to pass the means test? There are limited exemptions, which you should discuss with a lawyer.
Contact a West Palm Beach Bankruptcy Lawyer Today
When you are considering Chapter 7 bankruptcy or any type of reorganization bankruptcy, it is important to seek advice from one of the experienced West Palm Beach bankruptcy attorneys at Kelley Kaplan & Eller, PLLC. Our firm has years of experience representing both businesses and individuals in Chapter 7 bankruptcy cases, as well as in a range of business and individual reorganization bankruptcy cases. Contact us today for more information.
Sources:
uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-7-bankruptcy-basics
law.cornell.edu/uscode/text/11
