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Are income tax liabilities consumer debt?

Are income tax liabilities consumer debt?

In a Chapter 7 or Chapter 13 bankruptcy the means test is not required it more than 50% of the debt is non-consumer debt. Usually this is not the case because a mortgage is considered consumer debt so even if someone has substantial non-consumer debt, their mortgage loan outweighs their non-consumer debt amounts. However, this is not always the case.

If a client comes in and has a $100,000 home loan and another $20,000 in consumer debt and then also has $75,000 in taxes debt and $75,000 in business debt, then this client would likely not be bound by the means test given that more than 50% of his debt his non-consumer debt. While it is split in courts whether tax debt is considered consumer or non-consumer, the majority of courts hold that it is in fact non-consumer debt.


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