Consumer Debt vs. Non-Consumer Debt

Debtors hoping to file for Chapter 7 bankruptcy are required to complete certain forms as part of the bankruptcy means test in order to determine if there is a presumption abuse. When a debtor supposedly makes enough money to file Chapter 13 instead, it is usually considered a presumption of abuse of the Bankruptcy Code if that individual files for Chapter 7.

Title 11 U.S.C. § 707 states, "After notice and a hearing, the court, on its own motion or on a motion by the United States trustee, trustee (or bankruptcy administrator, if any), or any party in interest, may dismiss a case filed by an individual debtor under this chapter whose debts are primarily consumer debts (emphasis added), or, with the debtor’s consent, convert such a case to a case under chapter 11 or 13 of this title, if it finds that the granting of relief would be an abuse of the provisions of this chapter."

If a debtor has primarily non-consumer debts, however, the individual can seek an exemption from a presumption of abuse by completing a Statement of Exemption from Presumption of Abuse Under § 707(b)(2), otherwise known as an Official Form 122A?1Supp. Figuring out what constitutes a consumer debt as opposed to a non-consumer debt, however, can become a subject of some dispute in certain bankruptcy cases.

Bankruptcy Lawyer in Cincinnati Discusses Consumer Debt vs. Non-Consumer Debt

If you believe that you might be exempt from a presumption of abuse in Chapter 7 because you primarily have non-consumer debts, it is in your best interest to quickly seek legal representation. Steiden Law Offices represents clients overwhelmed with debt in communities all over Boone County and Kenton County in Kentucky as well as Hamilton County in Ohio.

Our Cincinnati bankruptcy attorneys can analyze your financial situation and help determine your best path forward to get a fresh start. Call right now to take advantage of a free initial consultation that will allow our lawyers to provide an honest and thorough evaluation of your case.


Northern Kentucky Consumer Debt vs. Non-Consumer Debt Information Center


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Types of Consumer Debt and Non-Consumer Debt in Ohio

Title 11 U.S. C. § 101 defines consumer debt as "debt incurred by an individual primarily for a personal, family, or household purpose." Any debt not defined by the Bankruptcy Code as debt incurred by an individual for personal, family, or household reasons is considered non-consumer debt.

Generally, consumer debt is treated as debt that funded a debtor's consumption, while non-consumer debt might have had a profit motive. Some of the most common kinds of consumer debt in bankruptcy cases include, but is not limited to:

  • Auto loans;
  • Cosmetic medical expenses;
  • Credit card debt;
  • Domestic support obligations;
  • Home mortgages; and
  • Personal loans.

Non-consumer debts often involve purchases made for an investment purpose. They are frequently referred to as "business debts," and include—but are not limited to:

  • Investment obligations;
  • Necessary medical expenses;
  • Personal guarantees;
  • Taxes; and
  • Tort claims.

The underlying purpose of most purchases often dictates their classification, depending on the court. Student loans, for example, are one kind of debt that may be considered consumer or non-consumer debt, although student loans are rarely discharged in bankruptcy cases.


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How Consumer and Non-Consumer Debts Affect Chapter 7 Cases in Kentucky

If a person's debts are primarily consumer debts, he or she will have to pass the median income test and possibly the means test in order to qualify for a Chapter 7 bankruptcy discharge. Non-consumer debts, generally, do not have a test requirement.
Most bankruptcy courts interpret the term "primarily" as meaning "for the most part," or more than half. Because residential home mortgages often account for a majority of a debtor's total debts, most people's debts are primarily consumer debts.


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Ohio Consumer Debt vs. Non-Consumer Debt Resources

Means Test Forms | United States Courts — Visit this section of the United States Courts website to download various bankruptcy means test forms. You can find Chapter 7 Statement of Your Current Monthly Income (Form 122A-1), Statement of Exemption from Presumption of Abuse Under §707(b)(2) (Form 122A-1 Supp), and Chapter 7 Means Test Calculation (Form 122A-2). Each form also allows you to view committee notes and form instructions.

Household Debt Service and Financial Obligations Ratios — The household Debt Service Ratio (DSR) is the ratio of total required household debt payments to total disposable income. The DSR is divided into two parts: Mortgage DSR is total quarterly required mortgage payments divided by total quarterly disposable personal income, and Consumer DSR is total quarterly scheduled consumer debt payments divided by total quarterly disposable personal income. View seasonally-adjusted household debt service payments and financial obligations as a percentage of disposable personal income for every quarter going back to 1980 on this section of the Federal Reserve Board website.


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Steiden Law Offices | Cincinnati Consumer Debt Bankruptcy Attorney

Do you need assistance in determining how your debt could be categorized for your Chapter 7 bankruptcy? You will want to contact Steiden Law Offices as soon as possible.

Our Cincinnati bankruptcy lawyers have offices in Cincinnati, West Chester, and Maineville in Ohio as well as Kentucky locations in Florence and Covington. They can review your case and discuss all of your legal options when you call or complete an online contact form to set up a free, confidential consultation



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