In bankruptcy lingo, the term “consumer debt” is often used to clarify how debts have been incurred. Different from business debt, consumer debt involves funds used for consumption rather than investment. Consumer debts are typically classified as such based upon the purchase of consumable goods that do not appreciate in value, such as those things that are purchased to pay personal or household expenses.
More about Consumer Debt
You’ll hear some other terms associated with consumer debt such as secured, unsecured, variable interest rate, fixed rates, and deductibles. It is helpful to understand the meaning behind these terms. It is also important to understand that not all consumer debt is considered to be negative. (Your mortgage is a good example of this.) Any debts that have high interest rates, such as credit cards, auto loans and some student loans, are typically considered bad consumer debt. Most recent studies indicate that the average U.S. Household Debt is increasing. For the first time, credit card debt is approaching one trillion dollars. In 4Q of 2015 alone, consumers racked up more new debt than in 2009, 2010, and 2011 combined. There is a level of economic concern when consumer spending goes far beyond what can be paid back.
Consumer Debt and Chapter 7 Bankruptcy
The good news is that if your debts are mostly consumer debts, half or more of your total debt, then you may be eligible to file Chapter 7 bankruptcy to eliminate debts. A Debt Advisors bankruptcy attorney may administer what is called, “The Means Test.” This, among other factors, will help determine what kind of debt you have, how much, when the debt incurred, what the purpose was, who made the purchase, etc. During the calculation of consumer debt, both spouses and debt incurred by children living in the home will be included. There are some surprises too, like the fact that medical bills are usually classified as non-consumer debts.
When filing bankruptcy, the determination of which debts are business or consumer can get a little tricky. Hire an experienced consumer bankruptcy attorney to ensure that your bankruptcy is filed correctly the first time. Your attorney will conduct a thorough debt analysis and cover all the bases to avoid any potential bankruptcy disputes in court. (The bankruptcy trustee and court will review each debt closely, and you will need the appropriate documentation.) Ask for our free consultation to get information you are looking for right now. Bankruptcy may turn out to be the best financial decision you have made regarding oustanding consumer debt.