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Business And Consumer Debt: Does It Matter Which Is Which?


To your business, debt is debt, it is money owed to you, and getting paid is an essential part of your business being able to operate. Why classify debt into what kind of debt it is?

Consumer Debt

Classifying debt matters because there are different rules that relate to how you can and cannot collect debt, depending on whether the debt is business related, or whether the debt is what is known as consumer debt. Consumer debt is generally debt that is incurred for personal, family or household purposes.

The things that most of us charge or borrow every day are types of consumer debt. Think of things like car or home loans, apartment rent, medical debt, payday loans, or other lines of credit that are extended to you.

The Debt Matters, Not the Debtor

What matters is the type of debt, not who the debtor is. In other words, an individual that has no corporation can have and incur business related debt. A college student who has a small photography business, and who charges some camera equipment on their charge cards, has incurred business related debt.

This often happens when people who are not businesses and are not incorporated invest money in property to rent it out or to flip it. Because that money is for business purposes (that is, to make money), the debt is business related—even though flipping may not be the person’s actual full time job or business.

Collection is Different

The reason why the difference matters is that a number of laws restrict how you can collect personal debt, and there are a number of laws that may require that you make certain disclosures to consumers before they take out debt. Those laws don’t apply when the debt is business-related.

You generally have a lot more leeway to say what you want when collecting business debt. Saying the wrong thing can get you sued for a lot of money when it comes to collecting consumer debt.

Debt and Your Business

In your business, you may have people who owe you both business as well as consumer debt. For example, your business partners, or companies that you do business with, owe your business related debt.

Your end-use customers who use your product or your service may owe you consumer debt when and if they fail to pay.

If you are in an industry where your product or service could be used as, or classified as, either consumer or business, you should speak to an attorney, so that you know what your rights are when it comes to collection.

This is obviously depending on your business–some businesses rarely interact with consumers, and thus, most of their debt is business related.

Call the West Palm Beach business litigation attorneys at Pike & Lustig today for help managing your business debt, whether you owe money, or other people owe you money that needs to be collected.

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