Consumer Debt v. Non-Consumer Debt

The bankruptcy code defines consumer debt as debt incurred by an individual primarily for a personal, family, or household purpose. Common examples of consumer debt would be a residential mortgage loan, medical bills and domestic obligations. Common examples of non-consumer debts would be business loans, guaranties on commercial obligations, tax debt and tort claims. As for credit cards, vehicle loans and student loans, the motivation of the debtor when the debt was incurred will control.

If a chapter 7 debtor has primarily non-consumer debt then his case cannot be dismissed for abuse based on 707(b) of the bankruptcy code. However, a chapter 7 debtor with primarily non-consumer debt can still have his case dismissed “for cause” under 707(a) of the code. In a chapter 13 case, if a debt is consumer in nature and is cosigned then the co-debtor enjoys the benefit of a stay as to collection activities and the plan can provide for preferred treatment of that claim. However, chapter 13 does not provide any protection as to the credit report of the co-debtor.