Business Debts Versus Consumer Debts in Bankruptcy

Making the decision to file for bankruptcy can be a difficult one, regardless of the types of debts you have incurred that have put you in a financially untenable position. For Tampa business owners, it can be complicated to categorize your debts as consumer debts or as business debts. But it is extremely important to distinguish between these types of debts, particularly if you are planning to file for Chapter 7 bankruptcy.

Why does it matter? In short, in order to file for Chapter 7 bankruptcy in Tampa, you will need to meet the “means test.” And if you have quite a bit of business debt but only a relatively small portion of consumer debt, you may be eligible to have your debts discharged under Chapter 7. To better understand how this works, we would like to take a closer look at the laws through which a debtor can file for bankruptcy relief.

Chapter 7 Bankruptcy and the “Means Test”

In order to be eligible for Chapter 7 bankruptcy, a debtor must take the “means test,” according to the U.S. Department of Justice’s website. What is the Chapter 7 means test? In short, in order to be eligible for bankruptcy relief under Chapter 7, you must have an income below a certain amount. The means test, then, helps to determine your eligibility for Chapter 7 bankruptcy protection. While there are some exceptions, in general, a Tampa Bay area consumer will not be able to pass the means test and may have to consider filing Chapter 13 bankruptcy instead, for instance.

However, simply having an income that is too high to qualify you for Chapter 7 bankruptcy does not necessarily mean that you cannot seek bankruptcy relief under this chapter. This is where business debts can come into play. To get a better understanding of what we mean, it is important to look at the language of 11 U.S. Code § 707(b)(1), which specifies that the means test applies to “an individual debtor . . .whose debts are primarily consumer debts.”

If the means test is primarily for consumer debts, what happens when a business owner in Tampa Bay has some consumer debts, but even more business debt? In brief, when you fill out the means test form, you will be able to indicate that your debts are not primarily consumer debts and thus you may not have to move forward with the means test. Debt classifications can be extremely complex, however, and you should always discuss your situation with an experienced Tampa bankruptcy attorney.

Learning More About the Categorization of Business Debt

What are common business debts, and how can you know whether your debts will be classified as consumer debts or business debts? This can be a tricky question to answer, given that U.S. bankruptcy law does not have a strict definition of business debt. Instead, it categorizes debt either as “consumer debt” or “non-consumer debt.” Thus we can tell you what kinds of debts are classified as consumer debts. Generally speaking, consumer debt includes any debt you incurred as an individual or as a family for reasons that are personal or related to your household. Typically, then, other debts may be classified as “non-consumer debt.”

You might ask yourself the following questions in consider debt classification:

  • – Was the debt incurred to pay for something related to your personal life or to a family member’s personal life?
  • – Was the debt incurred to pay for household goods?

If you can answer yes to either question, the debt may be consumer debt. However, if the answer is no, you may have “non-consumer debt,” or business debt. And as such, you may be eligible for Chapter 7 bankruptcy even if you cannot meet the means test.

Determining just how much debt meets the definition of “primarily consumer debt” can be one of the most complex issues in your case. If you are thinking about Chapter 7 bankruptcy and have both consumer and business debt, you should discuss your options with an experienced Tampa bankruptcy lawyer as soon as possible. Contact Tampa Law Advocates, P.A. for more information about our services.