If your debt is not “primarily consumer debt”, you don’t have to pass the means test to file bankruptcy.
So, you need to total up the consumer debt you have and compare it to the rest of your debts.
Don’t miss the fact that tort claims aren’t “consumer debts” under the means test.
So if tort judgments or even unliquidated tort claims total more than your consumer debt, you don’t have to take the means test.
Check the box, and come on in and file the bankruptcy chapter of your choice.
Let’s start by defining a “tort”. A tort is a civil wrong, other than a breach of contract, that causes injury or damage to another without excuse.
Automobile accidents make up the largest group of torts. The law requires everyone to conduct themselves so that others are not hurt. One who negligently fails to use appropriate care such that someone else is hurt has committed a tort.
Whereas people choose to enter into contracts, and the contract can specify the remedy if one breaches the contract, tort liability is imposed by law.
It is that imposition of liability that courts have looked to in finding that tort damages are not consumer debts for the purposes of bankruptcy law.
Means test controls access to bankruptcy
Virtually everyone who comes into my office has heard about, and obsesses over, the means test.
Often they assume that merely making more than the median income disqualifies them from bankruptcy relief.
I remind even bankruptcy lawyers that debt incurred for business or investment purposes and tax debt is not “consumer debt”. If non-consumer debt predominates, the means test does not apply.
Now, the logic of giving a pass in bankruptcy to those who don’t pay their taxes eludes me, but that’s Congress for you.
Not consumer debt
But there is a little discussed additional category of debt that is not debt “incurred for personal, family or household” purposes (§ 101(8)) : tort claims. The reported cases hold that these sorts of debts aren’t incurred in the manner of contract debts like credit cards and medical bills.
The client in my office had no contractual debt, other than a tiny student loan. But the pending lawsuit accused him of harboring a dangerous dog.
Now mind you, the dog didn’t weigh 5 pounds and the wound it inflicted was objectively insignificant. The suit, nonetheless, was expensive to defend, stressful, and could blight an otherwise sound financial life.
The bankruptcy case became just that much simpler when I recognized that we could bypass the means test.
Tort claims aren’t consumer debts; since the dog bite claim dominated the client’s list of debts, it became irrelevant how much money the client made.
The best way to ace the means test is to avoid it altogether.
Image courtesy of Wikimedia Commons.