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cfortunato
cfortunato, Attorney
Category: Bankruptcy Law
Satisfied Customers: 8023
Experience:  Bankruptcy professor.
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As stated in previous questions, I have a NY bankruptcy attorney

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As stated in previous questions, I have a NY bankruptcy attorney who is concerned that even though my business debt substantially exceeds our consumer debt, ($744K consumer - including mortgages on primary residence -vs. $823K - investment property debt) my high income might be a Chapter 7 "deal killer." However, when I spoke with a good friend who is a FL bankruptcy court trustee, he seemed to think that once we submitted the petition as a "business debt" our income would be "irrelevant." He then referred me to a trusted attorney friend in Florida who, surprisingly, voiced the same income concerns as our New York attorney(?)

So my specific question is: Is this matter of income beyond the means test and beyond the business debt test all simply a matter of the Judge's discretion? Or is there some Federal statute that govern who qualifies for a Chapter 7 business bankruptcy based on income?

If it helps: Our net income as stated on Schedule J is $5,825. This total does not include a monthly IRS tax installment payment of $500, my daughter's private school tuition of $980, and my son's car lease payment of $249. I also have to make 12 installment payments of $3,611.00 per month to pay the balance of my son's annual college tuition after financial aid!

The last part of my question is although I work and live in NY, our family still has a formal footprint in FL since both our children are in FL (my daughter is in her last year of high school) and we are back and forth regularly. In fact, my wife still has her FL driver license and spends several months a year there. Could we legitimately include the cost of renting property for my wife and daughter to live in as part of our monthly expenses when we submit the petition if net income is in fact a real issue? Alternatively, if we could negotiate a loan recast with the first mortgage holder, we were thinking about keeping our residence and resume paying the modified mortgage.

Thanks

cfortunato :

Hi JACustomer,

cfortunato :

In a 'primarily consumer debt' Chapter 7 Bankruptcy, the Bankruptcy can be dismissed (or converted to a Chapter 13 with the consent of the Bankruptcy filer) if the Bankruptcy filer does not 'pass' the Means Test.

cfortunato :

This is provided for in Bankruptcy Code section 707(b)(1):

cfortunato :

if it finds that the granting of relief would be an abuse of the provisions of this chapter.

cfortunato :

Section 707(b)(2) explains what amounts to the presumption of abuse (basically not 'passing' the Means Test):

cfortunato :

The issue in such a Bankruptcy is whether or not the debtor's debts are indeed primarily non-consumer debts.

Customer:

So based on Section 707(b)(2) - are you saying that to qualify as a "business" Chapter 7, you still have to essentially pass the "means test?" If so, doesn't that defeat the whole purpose of creating a separate category for filing as a "business."

cfortunato :

Once determined that the debts are primarily non-consumer debts, a case cannot be dismissed because of abuse - because the Means Test cannot be 'passed

cfortunato :

'

cfortunato :

.

Customer:

My "consumer-debt" is primarily my first and second mortgages. I don't have any active credit cards, and the only unsecured "other" debts are a business line of credit collection from 1999 which is now at $46K, a judgment for $12.5K for a credit card, and an auto repossession collection of $4.5K. But the other $700K+ of "consumer" debt is the first and second mortgage on my former primary residence. In your view, would this type of debt be considered "abusive" according to your interpretation of the code?

cfortunato :

You would not be able to deduct a rental expense for your wife and daughter to live in Florida.

Customer:

OK

cfortunato :

If it were determined that your debts are primarily non-consumer debts, you would be able to convert your case to a

cfortunato :

But given the information you provided, it seems clear that your debts are primarily non-consumer debts (primarily = more than 50%).

cfortunato and other Bankruptcy Law Specialists are ready to help you