Should I File a Business Bankruptcy or a Personal Bankruptcy?

By Cara O'Neill, Attorney
The type of bankruptcy you’ll file will depend on whether your bills are primarily business or consumer debts.

It’s likely that you already know the type of bankruptcy you should file because, in most cases, it’s relatively straightforward—individuals seeking bankruptcy protection usually file personal or “consumer” bankruptcy, and businesses file a “non-consumer” or business bankruptcy.

But then again, it isn’t always that clear. For instance, if you’re a self-employed party planner with a large credit card balance that you incurred after buying school clothes, streamers, and paper cups, you might not know which way to go. The same might hold true for a work-at-home travel blogger who racked up debt after vacationing in a new destination spot.

So how are you to know? Ultimately, your particular debt will determine the filing type. Here’s the rule: If your debts are “primarily consumer debts,” you’ll file a personal bankruptcy. If you have more business debt than consumer debt, you’ll file a business bankruptcy.

What is a consumer debt? It’s debt incurred when purchasing items that you use for personal, family, or household purposes. Such items will include things that you need to live, like groceries, clothing, and rent, as well as things that you buy for pleasure, such as a gym membership or a trip to Jamaica.

What does “primarily” consumer debt mean? The answer depends on where you live. Some courts allow you to add up your consumer debt. If the consumer debt amount exceeds that of your business debt, you’ll file a consumer bankruptcy—and vice versa. Other courts ask that you add up the number of debts that you have instead of the total dollar value of each type. You’ll have to find out the standard used by your local court.

Filing for bankruptcy can have lasting (and costly) consequences. If you’re not sure which type is best for you, speak with an attorney. A local bankruptcy lawyer will review all aspects of your financial situation and provide valuable insight about how the courts handle cases in your area.

(To find out more about the differences between the two types, read What Type of Debt Qualifies as a Business Debt?)

Go to the main business bankruptcy FAQ page.

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