What Is Consumer Credit?
Although any type of personal loan could be labeled consumer credit, the term is usually used to describe unsecured debt that is taken on to buy everyday goods and services. Credit cards issued by banks or other financial institutions, department store cards, gas cards–are all examples of revolving credit. Installment loans are another kind of consumer credit, and the most common installment credit example is an auto loan. Consumer credit is not usually used to describe the purchase of a house; that’s considered a long-term investment and is usually purchased with a secured mortgage loan.
Consumer Credit Causing Financial Distress
If you find yourself struggling every month to pay each of your credit cards as well as your department store cards, your gas cards, and make your car payments (not to mention continuing to live), your situation is not unusual. The average American had a credit card balance of $6,200 in 2019, according to Experian. And revolving credit with its high interest means disaster for those who can’t pay the balance in full every month. That means you continue to accrue additional interest charges from month to month. The average annual percentage rate on all credit cards was 20.21% as of August 2020. Department store credit cards averaged 24.22%. A single late payment can boost your interest rate even higher.
Bankruptcy Can Offer Relief
If your consumer credit obligations are driving you to the breaking point, then bankruptcy may be your wisest option. In Chapter 7 bankruptcy, consumer credit debt can be entirely eliminated. You also have the option of filing for Chapter 13 bankruptcy where you enter into an agreement with your creditors to repay a portion of your debt over 3 to 5 years.
Chapter 7 bankruptcy is also called Liquidation Bankruptcy, but don’t let that name scare you off. While it is designed to repay a portion of your debts through the sale of your assets, there are exemptions, and the experts at Burr Law can make sure your car and your home remain yours. The truth is that using exemptions to their fullest, you can derive the benefit of eliminating consumer credit debt while retaining your most valuable possessions. There is no minimum or maximum amount of debt needed to file a Chapter 7 bankruptcy. There is an income status requirement, though. Your income needs to be equal to or below Wisconsin’s median income, which in 2018 was $62,629.
Chapter 13 bankruptcy functions more like a reorganization. A trustee assigned by the bankruptcy court draws up a plan whereby you repay a portion of your debts over the course of 3 to 5 years. Your creditors then need to agree to the plan, and the bankruptcy court approves it. With this type of bankruptcy you will retain your car and your house as well. There is no income status requirement, though there is a maximum debt level. To be eligible to file for Chapter 13 bankruptcy, you must have no more than $394,725 in consumer credit debt and you also can have no more than $1,184,200 in secured debts, which includes mortgages and car loans.
Consumer credit obligations can be crushing, but they don’t have to be. Reach out to the professionals at Burr Law to discuss your financial situation. It may be that bankruptcy can entirely clear your consumer credit debt, or that it can be made into something manageable. You won’t know how close you are to relief unless you call now.