Can Millionaires File Chapter 7? Warren Sapp Can.
Can you file Chapter 7 if you make $115,000 per month?
Short answer: Yes. Retired NFL player (now broadcaster) Warren Sapp filed for Chapter 7 bankruptcy protection in Florida on March 30. He listed a residence valued at over $2.2 million, and makes $115,881/month. He owes an ex spouse nearly $900,000 in back child support/alimony and pays over $60,000/month in support. It appears the bankruptcy filing may have been triggered by a garnishment in December 2011 for over $133,000 for a deficiency on a foreclosure.
This is an illustration of the effect of the bankruptcy laws overhauled in 2005. A goal of Congress at that time was to force higher income people to file a reorganization type bankruptcy (Chapter 13 consumers, Chapter 11 for businesses and people with larger amounts of debt). To file a Chapter 7 a person generally must satisfy the “Means Test” which is a complicated calculation designed to determine if a person is abusing the bankruptcy system by filing Chapter 7. But there is an important provision in that law that says if a person has “primarily non-consumer debt” they do not have to perform the Means Test. He simply checks a box and can file Chapter 7. The court and trustees will examine the underlying information to determine whether the case is in fact a non-consumer case, but there is a presumption it is correct and the people (the debtor and his lawyer) who submit that paperwork are required to certify the information is accurate.
What is “non-consumer” debt? For Mr. Sapp, as for many, it is investment and business debt. It also includes income tax (which is listed in Mr. Sapp’s case as approaching $1 million but is disputed). If the total of the non-consumer debt is one dollar more than the total of consumer debt (residential mortgage, support, personal loans and credit cards), the filer does not do the “Means Test” calculation which determines whether he may file Chapter 7 or not.
So the long answer is, if he has enough of the right kind of debt, even a millionaire can file a Chapter 7 bankruptcy case and get a discharge of the debts.