High income debtors who might otherwise not qualify for Chapter 7 bankruptcy may still be able to liquidate their debts if the majority of their debts are non-consumer debts. In an effort to make sure that entrepreneurs felt free to take risks in business, the bankruptcy code was written in a way that high income individuals with mostly non-consumer debts incurred in the course of business would be able to discharge their debtors in Chapter 7 bankruptcy much like individual debtors with consumer debts. How do you know if your debt is a non-consumer debt? Let’s take a look at some examples of what non-consumer debts may look like:
- If you’re a high income debtor and have credit card debt incurred to buy equipment and supplies for your business, you may be able to discharge those debts in Chapter 7 bankruptcy. For example: If you purchased computers, printers and desks for your office on a credit card those debts may be discharged in Chapter 7 bankruptcy even if you have a high income. On the other hand, if you incurred debts on a credit card remodeling your personal residence because you wanted to resell it later at a higher price, that debt may not be dischargeable in Chapter 7 bankruptcy if you are a high income debtor who cannot pass the means test to qualify for a personal Chapter 7 bankruptcy.
- If you took out a personal loan and used that loan to purchase inventory for your business, even if you are a high income debtor you may be able to discharge that debt in Chapter 7 bankruptcy. On the other hand, if you took out a personal loan to pay your mortgage because you didn’t make any profits from your business for a few months, that debt might not be dischargeable in Chapter 7 bankruptcy if you are a high income debtor who cannot pass the means test to qualify for a personal Chapter 7 bankruptcy.
Remember, debtors who earn over a certain amount of income may not qualify for a personal Chapter 7 bankruptcy; but if the vast majority of their debts are non-consumer debts, then they may be able to still file for Chapter 7 bankruptcy.