In the case of In re Derrick Dewayne Gordon, Case No. 11-62509, 2012 Bankr. LEXIS 2012 (Bankr. N.D. Ga. January 23, 2012), a Georgia creditor successfully argued that an Atlanta Debtor could be forced into repaying his unsecured debts in Chapter 11 because his disposable income was high enough to repay 45% to 100% of his unsecured debts over a five-year plan. The Debtor was a management consultant making over $250,000 a year in base salary, plus bonuses. The Debtor had anywhere from $3,500 to $10,000 left over after paying all his expenses at the end of the month. The creditor moved to convert the case under section 706(b) of the Bankruptcy Code on the grounds that the Debtor had the ability to pay a significant portion of his unsecured debts and to allow him to discharge such debts without putting forth a good-faith effort to repay them in Chapter 11 would be an abuse of the bankruptcy mechanism.
First, this is a rare situation in which a non-consumer debtor with extremely high income filed for Chapter 7 bankruptcy protection for business related debts. You will hear many consumer bankruptcy attorneys discuss something called the “means test”, which is the test you must pass as a consumer debtor to determine whether you are eligible to file Chapter 7 bankruptcy. If your debts are primarily business debts, however, the means test does not apply and you can file regardless of your income levels. Even in cases with primarily business debts, the debtor will not have the incredible amount of disposable income that this particular debtor displayed. However, if you are a high-income earner and think bankruptcy may be the right decision to wipe out past business debt, consult the advice of a qualified bankruptcy attorney before deciding bankruptcy is the appropriate avenue to take. There are many situation in which bankruptcy may not be the right choice, and for some high-income individuals, loan workouts or debt negotiation may be the best option.