What Is Consumer Debt in Bankruptcy?

Learn about the differences between consumer debt and business debt.

You incur consumer debt when you use credit to purchase things that you and your family need for everyday living. If you owe money for goods and services in one of the following categories, you likely have consumer debt:

  • rent for your home
  • work and school clothes
  • household furnishings
  • residential utility bills
  • food purchased for family meals
  • gardening supplies
  • a family vacation
  • collectibles or hobby supplies
  • sporting equipment, or
  • entertainment for yourself or your family.

People with  primarily consumer debt  must meet income eligibility requirements and pass the  means test  before getting debts wiped out (discharged) in  Chapter 7 bankruptcy.

By contrast, an individual  debtor  (the person filing for bankruptcy) with primarily business debts will not have to meet income requirements or complete the means test to receive a Chapter 7 discharge. You incur  business debt  when engaging in a profit-motivated endeavor, such as opening a restaurant or starting a party-based cosmetic company.

The following are examples of common types of business debt:

  • a lease on an office or retail space
  • utility bills for a business property
  • inventory, or
  • office equipment and supplies.

Be aware that only a sole proprietor is eligible for a Chapter 7 bankruptcy discharge. Chapter 7 bankruptcy will not wipe out the debt of a partnership, limited liability company, or corporation.

(For additional details, read  Bankruptcy for Small Business: An Overview.)

 

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