What Type of Debt Qualifies as a Business Debt?

By Cara O'Neill, Attorney
Learn how to tell whether your debt is a business or consumer debt.

Your debt matters when deciding which type of bankruptcy to file. If your debt is "primarily” consumer debt, you’ll choose an individual (consumer) bankruptcy. If you have more business debt, however, you’ll file a business (non-consumer) bankruptcy.

You’ll categorize your debt by looking at its purpose. Specifically, business debt results from a desire to derive a profit. You take out business debt to help you make money in a business venture, not for personal, family, or household purposes. Debt incurred for personal purposes is “consumer” debt. (For more details, read Should I File a Business Bankruptcy or a Personal Bankruptcy?)

Here are examples of business debt:

  • a business loan
  • the cost to lease office space
  • personal and business taxes, and
  • the balance owed on a delivery van used in a cookie business.

Figuring out your particular debt type can get tricky, however. For instance, if you take out a home equity loan and use the funds to open a 24-hour diner, the purpose of the debt would be to make a profit operating a restaurant. In that case, the debt would be a business debt even though you secured the loan with your residence.

Similarly, suppose that you raise hamsters and sell them to a local pet store for profit. To track your expenses, you use a credit card to pay for the supplies. But you also use the same credit card to purchase your morning coffee. As a result, you’ll have consumer and business debt on the same account.

Keep in mind that addressing all types of business debt is beyond the scope of this article, and identifying one from the other isn’t always obvious. For instance, in some cases, student loans count as business debt. Before filing for bankruptcy, it’s best to meet with a knowledgeable bankruptcy attorney—especially since the initial consultation is often free.

Go to the main business bankruptcy FAQ page.

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