Consumer debts

You need to understand what consumer debts are. Here’s what to know.

What are consumer debts?

Consumer debts are personal debts as opposed to business or government debts. Debt created to buy household goods is considered consumer debt because it has nothing to do with running a business or paying for government operations. This distinction is important in Chapter 7 bankruptcy.

Deeper definition

Consumer debt refers to creating debt to buy things that can be consumed and do not appreciate in value. Consumer debt allows people to improve their lives or purchase things they need but can’t pay the full purchase price upfront.

Common examples of consumer debt include credit cards, mortgages, auto loans and payday loans, provided people use them primarily for themselves and not primarily for doing business.

For example, a loan for a family car is a consumer debt, even if the driver sometimes uses the vehicle for business purposes such as traveling to see clients. If a person has a vehicle that he or she only uses for business, such as a work truck or a company car, the debt for either is not a consumer debt.

In addition, taxes and medical bills are not considered consumer debt because they’re not voluntary.

According to the Federal Reserve Bank of New York, household debt rose by $114 billion in the second quarter of 2017 to a new peak of $12.84 trillion. That’s $164 billion above its peak in the third quarter of 2008 during the Great Recession. There were small increases in mortgages, auto loans and credit card debt.

To be sure, whether something is a personal debt or business debt is an important distinction in Chapter 7 bankruptcy. If more than half of a person’s debts are business-related (or non-consumer) debts, he or she can file for Chapter 7, without passing a means test to do so.

Consumer debt example

Lawrence, the owner of a small flooring business, bought some school supplies for his children with his personal credit card but used his business card to make a later purchase of bottled water for his work crew.

The credit card debt for school supplies was a consumer debt because the items were for his family. Since the pallets of water bottles were for his work crew and Lawrence paid for them with a business credit card, that debt would be considered business debt.

If you have credit card debt, learn how to pay off what you owe.


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