Distinguishing Personal Debt from Business Debt

As I wrote on Monday, a Chapter 7 bankruptcy often seems to be in the best interests of many clients who are initially looking to declare a business bankruptcy. I mentioned how having mostly business debt can allow you to avoid having to take a bankruptcy means test, but determining what qualifies as personal debt and what is business debt is frequently subject to debate. It is certainly another occasion you will want to be working with a Maryland or Washington DC bankruptcy attorney.

Personal debt (or consumer debt) is any debt that was accumulated primarily for personal, family or household reasons. Anything else would be considered non-consumer debt, but it is important to show what the money was used for rather than where you got the money from.

Generally, personal, consumer debt typically includes:

  • Child or Spousal support
  • Legal fees relating to the family or household
  • Mortgages
  • Personal income taxes
  • Personal insurance
  • Personal loans
  • Personal utilities

These types of debt are often considered business debt:

  • Business insurance
  • Business debts
  • Business legal fees
  • Business taxes
  • Business utilities
  • Investment real estate debt

The following types of debt may be classified as either consumer or non-consumer:

  • Student loans
  • Medical debt
  • Real estate debt
  • Credit card debt

Again, a client can face some contention from a trustee in distinguishing consumer debt from non-consumer debt, and an experienced bankruptcy attorney can help make the process easier. Another important form of non-consumer debt I do not have listed above is the personal guarantee—although many of those non-consumer debts listed are often incurred because of a personal guarantee. I will further discuss how these guarantees make owners of corporations or LLCs personally liable for a business’ debts on Friday.

Law Firm of Kevin D. Judd – Washington DC bankruptcy lawyer



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