Determining the difference between consumer and non-consumer debt for a bankruptcy means test is not always easy. When you file for bankruptcy you should be aware of why knowing the difference between consumer and non-consumer debt is important. To refresh your memory, a bankruptcy means test is a test that decides whether a debtor is eligible for a Chapter 7 bankruptcy.
Chapter 7 bankruptcies are used to liquidate debt and are typically the simplest and the quickest form of bankruptcy protection. However, the means test does not apply when your debts are not primarily consumer debts. So if more of your debts are non-consumer (business debts), you are eligible to file for a Chapter 7 bankruptcy without taking or passing the means test.
Business debt is anything that does not qualify as consumer debt and is often referred to as “non-consumer” debt. Consumer debt is defined as debt incurred for primarily personal, family, or household purposes. Anything else is non-consumer debt. The law states that if at least half of your debt is consumer debt, you need to take the means test.
Here are a few examples of non-consumer debt: taxes, credit card (if the use of the card was for strictly business purchases, mortgages (on a business property) and car loans (for a business). Here are a few examples of consumer debt: domestic support obligations, legal fees (for family/personal use) and medical bills depending on the purpose.
It is important to be very thorough and careful when preparing bankruptcy documents related to consumer and non-consumer debt. The courts will play close attention to what falls under each of these categories and it will affect your case.
If you are thinking about filing for bankruptcy, contact an experienced attorney to find out what the next steps are in handling your case. You don’t have to go through this complex process alone.