The great Chinese military general Sun Tzu once wrote, “The best victory is to win without actually fighting.” In bankruptcy, the best way to beat the means test is to avoid it altogether. Taking the Means Test only complicates your bankruptcy case, and may disqualify you from Chapter 7, force you into a five year Chapter 13, or make you pay more money each month to unsecured creditors. There are three situations when an individual is excepted from taking the bankruptcy Means Test:
Some disabled veterans may qualify to avoid the Means Test. First, the individual must be (1) a veteran who is entitled to compensation under laws administered by the Secretary for a disability rated at 30 percent or more, or (2) a veteran whose discharge or release from active duty was for a disability incurred or aggravated in line of duty.
Second, the debts in your bankruptcy case must have been “primarily” incurred while on active duty, or while performing a homeland defense activity. “Primarily” is generally interpreted by the bankruptcy courts as greater than 50%.
Primarily Non-Consumer Debts
The Bankruptcy Code excepts business debtors from the Means Test. If your business-related debts comprise more than 50% of your total debt, then you are excused from the Means Test requirement. Courts differ on the definition of “non-consumer” debts. Debts incurred with a profit motive, like a bank loan to buy a commercial oven for your upstart catering business, are clearly non-consumer debts. However, some courts have stated that personal tax debts and student loans are non-consumer debts as well.
Active Duty Military, Reservists and National Guard
Active duty military members also get a pass on the Means Test. In order to qualify, the individual must have been on active duty for at least 90 days, or performed a homeland defense activity for a period of at least 90 days. The Means Test exclusion lasts for the duration the individual is on active duty or performing a homeland defense activity, and for 540 days thereafter. Once the 540 day exclusion period ends, if the time has not passed for objections to the Means Test qualification in your bankruptcy case, you will have to take and pass the Means Test.