If your debts are primarily consumer debts, like credit cards, medical bills and payday loans, you cannot file chapter 7 bankruptcy if your income is over certain thresholds, at least not without drawing a "motion to dismiss" from the U.S. Trustee's office. Section 707(b) of the Bankruptcy Code provides a "means test" or formula to determine if your case will be presumed to be an abuse of the Bankruptcy Code, and therefore subject to dismissal.

But if your debts are business debts, or another kind of non-consumer debt, like taxes or a tort claim, then you do not have to undergo the means test. In this recent court case in Houston, a couple was trying to file chapter 7 even though their income was high. They argued that their debts were primarily business debts. In re Martin, Bankr. Court, SD Texas 2013.

Ultimately, the Bankruptcy Court sided with them, and determined that the complaining creditor had not proved their case, that the debt was primarily consumer debts. Since the debts of the debtors were primarily business debts, they did not have to undergo the means test, and they could get their discharge in bankruptcy.

But what I found interesting, what that the Court did not allow the debtors to count two large business debts, for "foreclosure deficiencies" owed after the foreclosure sale of certain business property. The Court didn't allow them to count those two big debts because the Court found that they were time-barred or uncollectible, since they did not sue the debtors within two years after the foreclosures occurred.

The statute of limitations for most debts in Texas is 4 years. But for foreclosure deficiencies, the creditors must sue within 2 years, or the debt is time-barred. Texas Property Code, Section 51.003.

J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization