The Exemptions Allowed under the Bankruptcy Code
The 2005 revisions to the American bankruptcy laws imposed a new hurdle that must be cleared before you can seek to discharge debts under Chapter 7. As a general rule, you must submit to a means test, demonstrating that you lack the resources to repay your creditors in a reorganization under chapter 13. Unbeknownst to most people, though, there are some situations where you don’t have to be subjected to the means test.
- The reserve or national guard exemption—If you have been or are in the National Guard or have served as a reserve soldier in any branch of the armed forces and were called to active duty after September 11, 2001, you can ask for an exemption from the means test
- The disabled veteran exemption—Under certain circumstances, you can waive the means test if you are a disabled veteran. Your disability must be at least 30% and the disability must stem from your military duty. In addition, you must have been discharged from active duty because of the disability.
- The business debt exemption (also known as the “business debt loophole”—Under the bankruptcy laws, the means test is only required when a debtor’s arrearages are “primarily” consumer debt. There’s actually a box on the first page of the means test that asks if most of your debts are business debts. If you indicate that they are, you don’t have to complete the rest of the form.
It is important to understand, though, that Congress did not define what “primarily” means. In practice, though, most courts have simply looked at whether you have more consumer debt or more business debt. If the bulk of your debt is business debt, you don’t have to qualify for Chapter 7 by taking the means test.
There may also be questions regarding whether debt is business or personal. Some debts, such as a mortgage, will typically be seen as personal or consumer debt. A car, though, may be either a business debt or a personal debt, based on how it’s used.
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At the Law Office of Andrew B. Finberg, LLC, we bring comprehensive bankruptcy counsel to individuals in Burlington, Camden and Gloucester counties in New Jersey. To schedule an appointment, call our office at 856-988-9055 (toll-free at 866-721-7269) or contact us online.