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April 28, 2023 Collections

Commercial Debt vs. Consumer Debt: What is the Difference?

If you have a credit card in your wallet or a loan with your bank, you have consumer debt. When a business takes out a loan, it has taken on commercial debt. Most everyone has some type of debt, including consumers and businesses. While debt is a necessary part of modern life, if you overextend yourself, you could end up owing more than you can pay. 

The average American has almost $60,000 of debt, including a mortgage, car loan, student loan debt, and credit card debt. In New Jersey, consumers average $4,820 in auto loan debt, $4,220 in credit card debt, $48,120 in mortgage debt, and $6,440 in student loan debt. Businesses also carry a large amount of debt. It is helpful to understand the differences between commercial debt and consumer debt. 

Commercial Debt

Commercial debt is also called business debt or non-consumer debt. It is debt owed from one business to another. This type of debt is business-related. It includes loans and purchases that are made on behalf of a company. Sometimes a loan may be necessary to start a business or to make a purchase for it. Companies make purchases for the materials they need to produce products or services to sell to customers. Tax debt and mortgages on business property are also examples of commercial debt. 

Examples of commercial debt include:

  • Business loans
  • Business purchases
  • Tax debt for the business
  • Mortgage
  • Any business-related expenses

Consumer Debt

Consumer debt is personal debt that a person incurs primarily for their own use. Consumer debt includes purchases made for personal, household, or family needs. Some of the most common consumer debt is in the form of credit card debt. When you buy something for yourself or your home with a credit card, you incur consumer debt. Alimony and child support are also considered consumer debt. Home mortgages, student loans, and car loans are some of the most common kinds of consumer debt.

Examples of consumer debt include:

  • Personal loans
  • Home mortgages
  • Student loans
  • Car loans
  • Tax debt
  • Credit card purchases
  • Medical bills

Types of Debt

There are various types of categories of consumer debt, such as secured debt, unsecured debt, and revolving debt. Secured debt is debt that is backed up with collateral for which the creditor has a lien. A home mortgage and car loan are examples of secured debt. The loan is secured with the home or car. If you default on the loan, the creditor may repossess your car, for example. 

Unsecured debt is money owed that is not backed by collateral. Examples of unsecured debt include such things as medical bills and student loans. Revolving debt, also called a line of credit, is debt that you can pay on a monthly basis. Credit cards are typically considered revolving debt. If you default on unsecured debt, a creditor may seek legal action to collect the money you owe. 

Commercial Debt vs. Consumer Debt Collection

When someone defaults on a debt they owe, the creditor usually has the right to pursue payment. Both commercial debt and consumer debt are typically subject to collections. Specific laws govern the collection of commercial debt vs. consumer debt. The Fair Debt Collection Practices Act (FDCPA) governs collection actions for consumer debt. 

Debt collectors must follow the rules set forth by federal law. Some of these include the requirement to contact a debtor only during certain hours, to stop contacting a person at their place of employment if they make such a request, and to contact the debtor through their attorney if they have retained one. Debt collectors are collection agencies, lawyers, and debt buyers who regularly collect debts as part of their business.

Commercial debt is also called business-to-business (B2B) debt and is not governed by the FDCPA. Instead, creditors usually employ the services of a collection agency that is certified through the Commercial Collection Agency Certification Program of the Commercial Law League of America. They certify collection agencies that adhere to the standards and regulations that apply. 

Debt collection for both commercial debt and consumer debt is important. To learn more about commercial debt vs. consumer debt, contact us at Snellings Law, LLC at (973) 265-6100.

Teaser: Both businesses and consumers have debt. It is helpful to learn the differences between commercial debt and consumer debt. 

Summary: Consumers have debt related to their living expenses, while businesses have debt for their companies. Commercial debt is also called B2B debt. It is good to know the differences between commercial debt and consumer debt.