Many of my bankruptcy clients in the Detroit, Michigan area have some percentage of business debt alongside their personal, consumer debt. As the job-market has soured here in Michigan, many people have tried to make their own opportunities where opportunities for traditional employment have failed, setting up LLCs or other businesses to try to make a go of it independently. Obviously, I don’t hear from those who succeed in these ventures, but I have heard from those who haven’t, whose ideas for insurance sales, landscaping services, trucking, towing, and other services simply haven’t panned out. On some occasions, these business ventures have been undertaken with personal credit-cards already in use for strictly consumer reasons. In such cases, there is no question that the individual has personally “guaranteed” the debt and may therefore discharge it in a personal Chapter 7. On other occasions, however, especially where an LLC or other corporate form has been set up by the individual and corporate credit-cards utilized, it is sometimes less clear that the individual is personally liable for the debt rather than the corporation.
I have written about the role of business debt in Chapter 7 bankruptcies before on this blog, however. The situation I am discussing here is the situation that arises when the individual has indeed personally guaranteed non-consumer, business debt and when that debt is larger than the individual’s personal debt, or, at least, when the amounts are very close. In that situation, there is a danger that the trustee appointed by the court to oversee the bankruptcy case may file a motion to dismiss the case entirely. The Bankruptcy Code defines “consumer debt” as “… debt incurred by an individual primarily for a personal, family, or household purposes.” Courts have interpreted this definition widely, but it is important to keep the proportion of debt that has been incurred for the purpose of forwarding an existing business enterprise in mind in particular.
If you are a southeast Michigan resident and are considering filing for bankruptcy, please contact me at (866) 674-2317 or firstname.lastname@example.org to schedule a free, initial consultation.