Consumer Debt

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Consumer debt is the sum of a consumer’s total debt, i.e., personal and government or business debt. However, most of this debt is in the form of a personal loan, credit card, or other lending instruments. These types of debt have incredibly high-interest rates and are the main reason people file for bankruptcy. The most common form of consumer debt is credit card debt with 20%+ interest rates, quickly becoming financially impossible to remedy.

If a person incurs debt from purchasing consumer goods with a personal credit card (such as a personal computer) and subsequently uses it in business, it would still be considered consumer debt. Likewise, if a person uses personal credit to pay for personal, family, or household expenses, this is most likely consumer debt. It’s essential to understand what consumer debt is and what is considered non-consumer debt. Before filing bankruptcy, one should assess both types of debt to understand how much each one has.

If a person’s debt is primarily consumer debt, they must pass the average income test and possibly the means test to qualify for a Chapter 7 bankruptcy settlement. If a debtor has outstanding debts, the lender or debt collector may receive a court order to try to withdraw funds from their bank account. Luckily filing bankruptcy stops this aggressive debt collecting through the issuance of an Automatic Stay, which suspends any debt collection or further harassment by creditors or bill collectors.

If more than half of your debt is non-consumer debt, you can apply for Chapter 7 and get settled without going through a wealth test. However, if the debtor has non-consumer debt primarily, an individual may seek relief from the presumption of abuse by filing a waiver of the “Presumption of Abuse.” Diaz and Larsen can help you decipher which is which. Get a free consultation today.

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