Non-consumer debts are often discharged in bankruptcy, although their potential for elimination depends in part on whether the debts are owed by an individual or a business.
In addition, non-consumer debts may not count towards a person's means test when determining eligibility for certain types of bankruptcy. As a result, adding non-consumer obligations to a bankruptcy may help a filer discharge more debts.
In brief, debt can be divided into two different types: consumer and non-consumer. While consumer debts are usually calculated in a filer's "means test" (which determines eligibility for Chapter 7 bankruptcy), non-consumer debts are often not included.
This means that the addition of non-consumer debts in a bankruptcy filing may allow a person to eliminate a greater amount of debt. Due to bankruptcy's different treatment of these seperate forms of debt, distinguishing between the two is important.
Consumer debts can be generally defined as financial obligations that arise from personal, family, or household expenses. Thus, consumer debts may include:
Bankruptcy is expressly designed to eliminate many of these types of debt. Chapter 7 takes aim at debts incurred from expenses like credit card use and medical bills, while Chapter 13 bankruptcy may help stop home foreclosure by helping homeowners catch up on missed mortgage payments.
On the other hand, non-consumer debts typically involve financial obligations that do not arise from personal purchases. Often, non-consumer debts are used for investment purposes.
The banking and legal systems encourage the use of some forms of non-consumer debt to foster economic growth, so this type of debt is very common. Examples of non-consumer debt may include:
While non-consumer and consumer debts are sometimes treated similarly when filing bankruptcy, the distinction between the two is not always cut and dry. Medical debt, for example, may qualify as non-consumer or consumer debt, depending on a person's unique circumstances.
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