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Consumer debt is on the rise

The United States Federal Reserve reported relatively recently that the country, including Michigan, is experiencing an uptick in borrowing by everyday consumers. While some could see this as a positive sign, especially in light of thinning unemployment lines, more consumer debt will naturally present some potential challenges to the public.

Interestingly, increased credit card debt loads were not the driving force behind the $14.1 billion increase in borrowing that the country saw at the end of last year. Instead, the public showed more willingness to take on a loan either for a car or for a college education.

As previous posts on this blog have reported, however, both car loans and student loans present a debtor with special challenges in a bankruptcy proceeding. For example, car loans are often secured debts, meaning that while a creditor cannot pursue a debtor personally after the debtor files bankruptcy, the creditor can still repossess the car, potentially leaving the debtor without transportation.

While in some situations, a debtor may be able to get some relief from the car loan, oftentimes the debtor will simply have to pay the loan back in full, even though the car is worth only a fraction of what the debtor bought it for.

As many Michiganders may already know, student loans are rarely dischargeable in bankruptcy at all. It is only in unusual cases in which a debtor will be able to avoid having to repay a student loan.

While it may be good that consumers are more willing to take a risk on things like cars and colleges, the trend presents its own set of challenges. Most notably, Michigan residents may need to ask now how they plan to pay a student loan or a car off should their financial situation take a turn for the worse. Even despite its limitations, bankruptcy can still be an important part of this conversation.

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