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What Is Consumer Debt?

Sarah Edwards | December 01, 2023

Sarah Edwards
Legal Expert
Sarah Edwards, BS

Sarah Harris is a professional researcher and writer specializing in legal content. An Emerson College alumna, she holds a Bachelor of Science in Communication from the prestigious Boston institution.

Edited by Hannah Locklear

Hannah Locklear
Editor at SoloSuit
Hannah Locklear, BA

Hannah Locklear is SoloSuit’s Marketing and Impact Manager. With an educational background in Linguistics, Spanish, and International Development from Brigham Young University, Hannah has also worked as a legal support specialist for several years.

Summary: Consumer debt is typically considered any debt incurred for personal or household expenses. Consumer debt influences how you file for bankruptcy. But you can also resolve consumer debt by using SoloSuit to start the settlement process.

Debt is generally divided into two categories: consumer debt and non-consumer debt. Understanding the difference can impact a bankruptcy case. By learning more about consumer debt, you’ll be better equipped to understand how your debts impact your overall financial situation.

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What’s the difference between consumer debt and non-consumer debt?

Consumer debt is defined by the U.S. Bankruptcy Code. Under 11 U.S.C. § 101(8), the consumer debt is definition is “debt incurred by an individual primarily for a personal, family, or household purpose.”

Common examples of consumer debt include:

  • Personal credit card debt.
  • Personal lines of credit.
  • Bank loans.
  • Home mortgages.
  • Vehicle leases.
  • Store financing.
  • Family or personal legal expenses.
  • Medical debt incurred for cosmetic purposes.

Non-consumer debt refers to debts incurred for business purposes, certain types of taxes, and penalties. Common examples of non-consumer debt include:

  • Business loans and lines of credit.
  • Personal guarantees.
  • Commercial mortgages.
  • Alimony and child support.
  • Traffic and parking tickets.
  • Criminal restitution.
  • Legal fees for business purposes.
  • Tort claims.
  • Taxes.

Notice that some debts, such as a mortgage, can be consumer or non-consumer depending on whether the loan is for personal or business property. Additionally, taxes are not considered consumer debt.

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Consumer debt impacts bankruptcy filings

The distinction between consumer debt and non-consumer debt has direct implications for bankruptcy filings.

How does consumer debt impact Chapter 13 bankruptcy filing?

Consumer debt can influence whether you are granted an “automatic stay” in Chapter 13 bankruptcy. An automatic stay prevents creditors from collecting debt on select assets, especially those that are connected to consumer debt. For example, if you co-own a house with someone filing for Chapter 13 bankruptcy, an automatic stay will save you from foreclosure.

The same protections do not apply to non-consumer debt, which means that creditors can repossess your business property.

How does consumer debt impact Chapter 7 bankruptcy filing?

Filing for Chapter 7 commonly requires something called a “means test.” This process is designed to evaluate your ability to repay your creditors without declaring bankruptcy. But the means test is only necessary if you primarily have consumer debt.

For legal purposes, “primary” consumer debt means that more than 50% of your total debt is classified as consumer debt. If you “fail” the means test, it indicates that you can pay your debts without declaring Chapter 7 bankruptcy, which means you won’t have the same legal protections.

Are student loans consumer debt or non-consumer debt?

Student loans are a bit of a unique case. If your student loans were primarily used for tuition and fees, then student loan debt can be classified as non-consumer debt. But if you used your student loans for daily expenses or rent, your loans would be considered consumer debt.

If your student loan is considered a non-consumer debt, you may be able to avoid the means test when filing for Chapter 7 bankruptcy.

See if you're eligible for bankruptcy.

Settle your debt to avoid bankruptcy

Bankruptcy offers limited legal and financial protections, but this option should be viewed as a last resort. The following steps can help you resolve debt once and for all.

Fight debt collection lawsuits by filing an Answer

You can fight a debt collection lawsuit if you act fast. File an Answer before the court’s deadline to indicate your intent to defend yourself.

Make sure to act within two weeks of receiving the notice of the lawsuit. Missing a deadline may result in the courts rendering a default judgment in your creditor’s favor. The deadline to respond to a debt collection lawsuit is different in every state. Use SoloSuit’s lawsuit deadline calculator to find out how much time you have to respond to yours:

Deadline Calculator

Select your state.

Select the day you were served.

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This calculator is for educational purposes only. It does not factor in weekends or holidays, so your actual deadline may be some days later.

Negotiate a settlement

Resolve your debt by negotiating a lower settlement amount. Send a Settlement Letter to your creditor and offer to pay 60% of your total debt. Your creditor may decline, but you’ll at least open up negotiations and eventually arrive at a mutually agreeable solution. Let’s look at an example.

Example: Trevor was stressed because a debt collector was hounding him. When he received notice that he was being sued, he briefly considered declaring bankruptcy. Instead, he filed an Answer with the court to indicate that he planned to fight the lawsuit. In the meantime, he used SoloSettle to negotiate a settlement with the debt collector. They rejected his first offer to settle, but Trevor gratefully accepted their counteroffer and settled his debt for 75% of the total amount. Not only did he avoid bankruptcy, but he was able to work toward paying off his debt and rebuild his credit.

Watch the following video to learn more about settling your debt.

Resolve consumer debt

Understanding consumer debt is important when you're considering bankruptcy. But you can also resolve consumer debt by settling out of court. This will avoid further legal challenges and put you on the road to financial recovery.

How do you resolve consumer debt? It can be as simple as reaching out to your creditor or lender to discuss your options. If you’re experiencing financial struggles, they may be willing to work with you and help you set up a new payment plan.

In the event that your creditor is not willing to help you pay off your debt under new terms, they might even take legal action against you. If this is your case, respond to your debt lawsuit to avoid losing automatically.

How to Answer a Summons for debt collection in all 50 states

Here's a list of guides on how to respond to a debt collection lawsuit in each state:

The Ultimate 50 State Guide

Guides on how to resolve debt with every debt collector

Are you being sued by a debt collector? We’re making guides on how to resolve debt with each one.

Resolve your debt with your creditor

Some creditors, banks, and lenders have an internal collections department. If they come after you for a debt, Solosuit can still help you respond and resolve the debt. Here’s a list of guides on how to resolve debt with different creditors.

Get debt relief in your state

We’ve created a specialized guide on how to find debt relief in all 50 states, complete with steps to take to find relief, state-specific resources, and more.

Debt collection laws in all 50 states

Debt collection laws vary by state, so we have compiled a guide to each state’s debt collection laws to make it easier for you to stand up for your rights—no matter where you live.

Check the status of your court case

Don’t have time to go to your local courthouse to check the status of your case? We’ve created a guide on how to check the status of your case in every state, complete with online search tools and court directories.

How to stop wage garnishment in your state

Forgot to respond to your debt lawsuit? The judge may have ordered a default judgment against you, and with a default judgment, debt collectors can garnish your wages. Here are our guides on how to stop wage garnishment in all 50 states.

How to settle a debt in your state

Debt settlement is one of the most effective ways to resolve a debt and save money. We’ve created a guide on how to settle your debt in all 50 states. Find out how to settle in your state with a simple click and explore other debt settlement resources below.

How to settle with every debt collector

Not sure how to negotiate a debt settlement with a debt collector? We are creating guides to help you know how to start the settlement conversation and increase your chances of coming to an agreement with every debt collector.

Other debt settlement resources

Personal loan and debt relief reviews

We give a factual review of the following debt consolidation, debt settlement, and loan organizations and companies to help you make an informed decision before you take on a debt.

Guides on arbitration

If the thought of going to court stresses you out, you’re not alone. Many Americans who are sued for credit card debt utilize a Motion to Compel Arbitration to push their case out of court and into arbitration.

Below are some resources on how to use an arbitration clause to your advantage and win a debt lawsuit.

Stop calls from debt collectors

Do you keep getting calls from an unknown number, only to realize that it’s a debt collector on the other line? If you’ve been called by any of the following numbers, chances are you have collectors coming after you, and we’ll tell you how to stop them.

Civil law legal definitions

You can represent yourself in court. Save yourself the time and cost of finding an attorney, and use the following resources to understand legal definitions better and how they may apply to your case.

Get answers to these FAQs on debt collection

How-to debt guides

Learn more with these additional debt resources

Not sued yet?

Use our Debt Validation Letter.

Out Debt Validation Letter is the best way to respond to a collection letter. Many debt collectors will simply give up after receiving it.

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