Are You Owed Consumer Or Commercial Debt? The Difference Matters

When your business is owed money, you collect the money in an effort to get paid. You probably don’t give much thought to what kind of debt it is. Money is money and who cares why it was incurred, or why it is owed to you, so long as it is paid back.

But think again, because the kind of debt that is owed can get you in trouble, if you don’t know why it was incurred. That’s because different collection rules apply to different kinds of debt, and if you collect a debt the wrong way, you can end up owing the other side money.

Different Kinds of Debt

As a general rule, debt is divided into consumer and business (or commercial) debt. Knowing the difference before you start collection efforts is vital.

Consumer debt is protected by a myriad of consumer protection collection statutes, including the Fair Debt Collection Practices Act and the Florida Consumer Collection Practices Act. Both laws have strict requirements in what you can and can’t say in the collection of a debt. In fact, some of the things you can’t say may sound, to you, quite innocuous.

That means that when you’re collecting consumer debt, you should be sure that you have an attorney review your letters, or scripts that collection agents will use, when speaking to consumers who owe you money. In fact, many companies have collection agents undergo training, to ensure that they know how to address things that consumers say.

Business Debt and Consumer Debt

A business debt is easy to identify—a debt that is incurred for business or commercial or money making purposes. But how do you know what a consumer debt actually is?

Consumer debt is defined as debt incurred for personal or household reasons. Still, the inquiry isn’t so easy.

For example, if Joe Fixit buys a few tools on credit because he wants to make some extra cash as a part time repairman, he doesn’t have a business, is not legally incorporated, and may not even hold himself out as a company, but the expense may be considered a commercial or business debt.

Many people do artwork both for fun, and to sell, for a profit. If there is a debt related to those supplies or equipment or for advertising artwork to sell, that debt could arguably be called either consumer or commercial.

Multiple and Changing Reasons

Sometimes, someone may incur a debt for multiple reasons. For example, someone may take out a loan, buy a personal refrigerator (consumer debt) and a company car, all paid for by the same loan or line of credit.

The purpose of debt can even change; imagine someone who takes out a personal mortgage loan on their home, and then later, moves out and rents the property out?

Generally, the purpose of the loan is determined by its purpose at the time that it was taken out, even if it later “transforms” into the other kind of loan.

Get legal help to keep yourself out of trouble if you’re collecting debt owed to you. Call our Fort Lauderdale business law lawyers at Sweeney Law P.A. at 954 440-3993 for help today.

Sources:

leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0500-0599/0559/Sections/0559.72.html

ftc.gov/legal-library/browse/rules/fair-debt-collection-practices-act-text