Is the Means Test Required for Non-consumer Debt?

Consumer Watchdog

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Is a Chapter 7 means test required when considering non-consumer debt? Before we can give a good answer to this question, it might be best to understand what non-consumer debt really is, and the difference between consumer and non-consumer.

Consumer and Non-consumer Definitions

According to Wikipedia, “A consumer is a person or group of people that are the final users of products and or services generated within a social system. A consumer may be a person or group, such as a household.”

Since a consumer is the one who consumes (uses) the goods and services produced within a social system, conversely, a non-consumer is the one that produces that which is being consumed.

in bankruptcy law, a non-consumer is the business man or woman who produces a product or provides a service which is eventually consumed. If you own a business that produces a product or provides a service, you are considered a non-consumer when you produce or provide that which is consumed by others. Technically though, if you have a need to consume that which you produce as a product or provide as a service, you can be both a consumer and non-consumer. Bankruptcy law provides directions for these subtle differences when an individual as a non-consuming business person has a need to file for bankruptcy protection.

Non-consumer and Consumer Debt Defined

Title 11 USC 101 (8) defines consumer debt as debt incurred by an individual primarily for a personal, family, or household purpose. Conversely, non-consumer debt is debt generated in the operation of a business that produces a product or provides a service for consumption.

If your debts are primarily non-consumer debts, meaning more than 50 percent of the debt you owe, under title 11 USC 707 (b), you are not subject to a means test in filing a Chapter 7. In deciding whether or not you qualify to file a Chapter 7 without taking the means test under this law, you must consider all your secured and unsecured debts, both consumer and non-consumer types.

Complications in Bankruptcy Law

Since having non-consumer debt of more than 50 percent determines whether or not you can file a Chapter 7 without having to consider the means test, you can still be a consumer and non-consumer of the products you produce and the services you provide in your business at the same time. In bankruptcy law, the overriding factor in determining whether you can file a Chapter 7 involves whether you debts are considered consumer or non-consumer debts.

You cannot start a business primarily for the purpose of supplying your family with products or services your family needs to exist and still expect to pass the means test as a non-consumer. The money you borrow in this case to run the business would be considered consumer debt even though it would be under the auspices of doing business. In other words, what you sell to your family would have to be considered for consumption, and the debt related to that consumption would have to be considered consumer debt.

When it comes to complicated bankruptcy laws, a wise debtor would do well to seek out experienced legal counsel before attempting to file bankruptcy.

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