Mostly business debts, no need for means test

[time4cake]

My attorney mentioned a curious thing. I owned a business as a residential contractor, and as such have incurred significant debt in relationship to the business. The most recent of which is a Spec house I built on which I owe $300,000, and a recent lawsuit with a claim of $400,000 against me, and finally the last two years tax returns showing I put $60,000 into my company (prior to closing the company).

The attorney said that if they try to bump me to a Chapter 13, he will argue that "People whose debts are primarily business debts are exempt from the means test and may file Chapter 7 bankruptcy regardless of their income and expenses."

Since my business related debt represents 54% of my current debt, it seems to be a very defensible position.

I haven't read this tidbit on this site, so I thought I would put it out there.

[SinkingFast]

There was another guy on here when I first joined. Maybe he'll see your thread and pop in.

He was a general contractor whose personal and business finances were intertwined.

He commented once that an attny told him during a Consult, it would be better to file personal BK and let the company die a natural death. Evidently New Law for Business BK is even worse than it was before. That was the explanation given for that rationale.

Your attny seems to be taking a different point of attack. Could be a risky move. I don't know. I don't know the Law. Don't presume to know the Law. But attnys that step out and take risks,........ That's where law is defined.

[djk]

cake,
I think you stated before that the business income generally flowed right into personal income. if that was the case, the "business" was somewhat of a "shell". your attorney can argue until he is blue in the face and you may still go down in flames unless he has some very good precedents under the new law to back it up. I'd hate to be a hopeful precedent setting case.

[aa06a47]

I have heard horror stories about business and personal finances in bk. I'm sure your attorney mentioned it, but be prepared to produce reams and reams of documentation. Not that any of them will ever look at them, it just seems some trustees like to add a little monkey wrench in the process.

[time4cake]

I understand that these are heady issues, and I am only looking for bankruptcy advise. I am a certified public accountant, and trust me I understand the difference between a company that is a shell and legitimate partnership that files "Form 1065" every year.

It is fully legal and done on a large scale. Millions of tax payers own interest in partnerships. The nature of a partnership is that the income is not taxed at the company level. The income "flows through" to the personal tax return of the partner.

Furthermore, the downside of a true partnership is that the business does not offer any protection to the partners in regards to their personal assets. Prior to the creation of limited partnerships and LLCs a partner's personal assets could be liened if a judgement was entered against the partnership.

In my case, my company was an LLC, and as such my personal assets are supposedly protected. However, in a complete disregard of the law the company filing suit against me named both my company, and me personally. Since I closed my company last year I am left standing alone to make a defense.

Though they do not have a case against me personally, I still need to answer the complaint. As you have probably already learned the legal system is not cheap, and being as I am here in bankruptcy I don't have the funds to mount a defense. Remember, there is no presumption of innocence in a civil case, and so I must prove my innocence.

In conclusion the company was legitimate not a "shell." The lawsuit against me, though frivolous, as it was for something a subcontractor did that was hired by my company, still needs to be answered. There is no doubt that a judgement against me based on this lawsuit is business debt.

The original issue was regarding bankruptcy only, and can be stated in the following question:

Is it true that if an individuals debts are primarily business debts the individual does not need to pass the means test, and is automatically allowed to file for Chapter 7?

[djk]

The original issue was regarding bankruptcy only, and can be stated in the following question:

Is it true that if an individuals debts are primarily business debts the individual does not need to pass the means test, and is automatically allowed to file for Chapter 7?

I've never heard of it before, but you state your lawyer seems to think so and you, I guess, are paying him, so go with it. You might win.

[scammer]

Time4cake, awesome posts, I commend you for sharing.