When considering bankruptcy, your debt is classified as either consumer or non-consumer debt. How the majority of your debt is classified could affect your case. This includes whether you can file Chapter 7 or need to pursue a repayment plan under Chapter 13.
Under 11 U.S.C. § 101(8) of the Bankruptcy Code, individuals incur consumer debt to pay for personal, family, or household needs. All other debt is non-consumer debt, sometimes called business debt.
If you are considering bankruptcy in North Carolina, you may want to speak with an attorney first. A bankruptcy lawyer can help you understand the classification of your debts and how it impacts your case.
Understanding Consumer Debt
The best way to understand consumer debt is to consider what you spent the money on. If it was a personal or household expense that you chose to purchase or pay, it is likely consumer debt. This generally includes:
- Car loans for personal vehicles
- Credit card debt spent for personal use
- Personal loans
- Appliance or furniture payment plans
- Your home mortgage
There are many other examples of consumer debt. However, if you chose to incur the debt to pay for something for yourself or your family, it likely qualifies.
Examples of Non-Consumer Debt
Non-consumer or business-related debt is spent for business purposes or incurred involuntarily. Income taxes and medical debt are both frequently classified as non-consumer debt. You do not voluntarily opt into paying these bills. The same is true if you have a tort levied against you after an auto accident or other personal injury case.
Most other types of non-consumer debt are related to business expenses. For example:
- Mortgages on rental homes you purchase as investments
- Loans on business vehicles
- Your company credit card
How Does Debt Classification Matter in Chapter 7 Bankruptcy?
Before you can begin the Chapter 7 bankruptcy process, you must pass a means test. The means test requires you to complete several forms to calculate if you qualify for a discharge of your debts. According to the United States Courts, these forms include:
- Chapter 7 Statement of Your Current Monthly Income (Form 122A-1)
- Chapter 7 Means Test Calculation (Form 122A-2)
If you primarily have non-consumer debts, the means test does not apply. If this occurs in your case, you may be able to file Chapter 7 and have your debts discharged. You could disregard the means test by completing a Statement of Exemption from Presumption of Abuse Under §707(b)(2) (Form 122A-1 Supp).
This could make it possible for you to qualify for and receive a debt discharge under Chapter 7 when you previously believed your income was too high to do so. Many people want to pursue bankruptcy protection under this chapter. This is because Chapter 13 requires restructuring your debts and paying them back based on a three- to five-year repayment plan.
While Chapter 13 can significantly reduce your debts, Chapter 7 effectively cancels them, and you walk away in a few months, not owing your creditors anything.
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How Can a North Carolina Bankruptcy Attorney from Our Team Help with My Case?
Working with a bankruptcy law firm in North Carolina can help you better understand the process, your financial standing, and how your choices can impact your future. Your lawyer will analyze your accounts and debts. Our team can help you develop a strategy to seek a repayment plan or discharge.
In many cases, having primarily non-consumer debts may allow you pursue Chapter 7 bankruptcy even though your overall finances would not pass the means test. This means you may be able to discharge the debts you owe with no repayment. Many people even retain all their assets during this process.
When you work with our bankruptcy attorney, you will also have someone to:
- Provide answers to your questions about bankruptcy
- Prepare all necessary documents
- Gather supporting paperwork for your petition
- Prove you meet the means test or can skip it
- Document your exempt assets
- Protect your home, car, or other investment
- Help you understand the next steps in the process
- Protect your rights
- Represent you to your bankruptcy trustee, creditors, and others
Having someone on your side and fighting for your best interests throughout your case may make this stressful and challenging time easier. Your attorney will know how to classify your debt and determine if you have to take the means test. They could tell you how to complete the necessary petitions and paperwork to begin your bankruptcy.
Speak with Farmer & Morris Law, PLLC, About Your Case Today
The North Carolina bankruptcy legal team from Farmer & Morris Law, PLLC, helps clients filing Chapter 7, Chapter 11 reorganization. We also help with Chapter 12 for family farms and fisheries, and Chapter 13 bankruptcy. We may be able to help you get the protection and relief you need.
We have offices in:
- Rutherfordton, NC
- Spartanburg, SC
- Morganton, NC
- Shelby, NC
Call (828) 286-3866 now to connect with a member of our team.