What If My Debt Is Primarily Business Debt?

An experienced and knowledgeable bankruptcy attorney such as Alberto Montefalcon may assist anyone whose financial situation necessitates the filing of a bankruptcy case. Prospective bankruptcy debtors need someone to provide them with information about their rights, including whether to file a bankruptcy case.

Individuals who operate their own businesses as sole proprietors must file individual bankruptcy cases and may not file a case in the name of the business. Also, of significance is the fact that a debtor is not required to complete the means test if over 50% of his or her debt is business debt rather than consumer debt.

The “means test” determines if a debtor has sufficient income to repay a certain threshold amount of debt to creditors. If a debtor’s income as established by the means test is above the threshold amount of median income for the size of the debtor’s household in California, a debtor must further calculate his or her income to determine if a chapter 13 bankruptcy case, which requires a plan of repayment, must be filed instead of a chapter 7 bankruptcy case, which does not.

Thus, chapter 7 debtors with primarily business debts (over 50%) are at an advantage because they are eligible to a chapter 7 bankruptcy case without having to undergo the complicated means test. The Bankruptcy Code defines a “consumer debt” as that “incurred by an individual primarily for a personal, family, or household purpose.”

It is very important for business owners to note that debts used for a business, such as consumer credit cards and home equity lines of credit, may qualify as non-consumer debt based on the credit’s sole purpose to support and finance the business. Alberto Montefalcon may provide invaluable assistance in making this analysis on behalf of business owners.

An experienced Sacramento metropolitan area/Northern California bankruptcy attorney, Alberto Montefalcon is here to help you if your financial position requires the consideration of bankruptcy as a solution to once and for all solve immediate financial problems. Contact his office online or schedule a consultation at any of our three conveniently located offices. Telephone our downtown Sacramento office at (916) 444-0440, our South Sacramento office at (916) 399-9944, or our Concord office at (925) 222-5929.