When an individual is in debt, it means they owe something to someone else, usually money. The individual who owes the money is known as the debtor. The party that is owed the money is known as the creditor.
A creditor is often a lending institution such as a bank or a credit card company. Debts may also involve other assets such as property interests.
What is Consumer Debt?
Consumer debt is debt that is owed by a consumer rather than by a business or an organization. In other words, it is personal debt that is owed by regular individuals. It is also sometimes referred to as consumer credit.
This type of debt arises when an individual borrows money. It often comes in the form of fixed-payment loans or when an individual makes charges to their personal credit cards, creating credit card debt. Another example of consumer debt is payday loans.
Consumer debt is the type of debt that most individuals are familiar with. It includes personal debts and debts incurred for the purpose of meeting living expenses.
Common types of consumer debt include:
- Mortgages, or home loans. For most individuals, this is the largest amount of debt they owe;
- Credit card debt. Many individuals have card with high interest rates and spend outside their means on those cards, compounding the issue;
- Student loans. Student loans are non-dischargeable in bankruptcy proceedings, so they often remain as an expense over many years;
- Bank loans and overdrafts. Bank loans are commonly utilized for large one-time expenditures such as an automobile purchase or home improvements. However, they often involve payback plans extended over long periods of time.
In many cases, consumer debt occurs when individuals purchase goods that do not appreciate in value over time. This includes items such as clothing, which do not typically increase in value. Automobile loans also account for a large portion of consumer debt in the United States.
It is important to note that there is a difference between goods that do not appreciate in value and goods that are considered investments. For example, a student loan may not always qualify as a consumer debt because it is considered an investment in an income increase in the future.
What are Some Legal Issues Related to Consumer Debt?
There are times when an individual takes on more consumer debt than they can handle. When consumer debt begins to get out of control, there are a number of legal issues that may arise. Some common examples of legal issues that arise include:
- A breach of contract;
- A property lien; and
When an individual signs up for a credit card or takes out a loan for a house or a vehicle, they sign a contract. If an individual is unable to make payments as they agreed to in the contract, they may default on their obligations to the lender. When this occurs, the individual creates a breach of contract.
In some situations, consumer debt and overspending is the sole or main cause of personal bankruptcy. For example, an individual’s consumer debt may not leave them enough room in their budget for additional necessary expenses such as emergency medical treatments.
Filing for consumer bankruptcy may alleviate some of an individual’s debts. In some cases, other types of debt, such as medical bills, may cause an individual to have to file for bankruptcy.
The legal consequences of debt are determined by what type of debt is involved, secured or unsecured. Secured debt is debt that involves real or personal property that the creditor is permitted to seize in the event the loan enters default statuts, or the individual is unable to make monetary payments.
Secured debt most often involves a home or car loan. The security on these loans is the house or car, which the individual has pledged to use as collateral for the loan they obtained.
In some situations, a credit organization or other lending institution may take hold of the individual’s personal or real property by means of a property lien. A property lien permits a lender to take title of the property because of the missed debt payments.
Unsecured debt is debt that does not involve any type of property used as collateral or security on the loan. Because of this, creditors are initially prevented from reaching any of the debtor’s assets as payment for that loan.
Therefore, the creditor is typically forced to resort to other means of collection, such as hiring an independent collections agency or filing a lawsuit in court. Credit card debt is the most common type of unsecured debt.
What if I Have a Consumer Debt Dispute?
If an individual has a consumer debt dispute or is considered a lawsuit regarding their debt, there are steps they may take, including:
- Notifying the lender if they can not make their payment;
- Begin gathering important documents, including:
- Lending contracts;
- Debt agreements;
- Pay stubs; and
- Any other relevant documents that may serve as evidence;
- Obtaining advice from a professional.
In many cases, a bank or lender has as much at stake in an individual’s loan as they do. The bank or lender may be willing to work out an alternative payment plan to keep the individual enrolled with them.
An individual may be well served to seek the advice of a profession regarding what steps to take. For example, a credit counselor or an attorney can inform the individual of their rights and obligations as a consumer.
It is also important to consider the fact that every state may have different consumer and debt laws. This is important to keep in mind if an individual has moved from one state to another and is unfamiliar with the laws in their new location.
For example, the deadlines for filing debt claims may vary by region. An individual should consult with an attorney for advice regarding these kinds of issues.
What Laws Provide Consumers with Protection from Creditors?
There are many state laws in place to ensure that a creditor does not treat a debtor unfairly. There are also federal laws enacted for the same purpose.
The main federal statute that regulates creditor collections is the Fair Debt Collection Practices Act (FDCPA). This act regulates the manner in which a bill collector is permitted to make collections. For example, a bill collector is prohibited from calling at certain hours of the day and from making a threat in an attempt to force a debtor to make a payment.
Do I Need a Lawyer to Help Me with My Consumer Debt Issues?
It is essential to have the help of an experienced finance attorney for any consumer debt issues you may face. If you have any questions regarding any issues you are having with consumer debt and especially if you are facing serious consequences such as breach of contract or defaulting on a loan, an attorney can help.
Your attorney can review your case, assist you with a lawsuit if you have been sued by your lender, and represent you during any court proceedings. Your lawyer can also assist you in creating a plan to pay off your debt, advise you on your rights regarding your debt, and help you get on the path to financial recovery.