Too Young For Bankruptcy?

Posted on Jan 2nd, 2017 | Credit, Debt

Recent college graduates are more in debt than ever before. When you combine substantial credit card debt with crippling student loan payments, it may look like that financially secure future is moving farther and farther away. With this as the new normal, many young adults are now looking into bankruptcy and asking, "Am I too young to file?" The quick answer is, "No." The long answer involves a little more info.

The Legal View
Anyone of legal age can technically file for bankruptcy, but this doesn’t mean you will be granted this status. In other words, you can’t simply say, "I’m bankrupt" and have your debt disappear. You have to be granted a bankruptcy ruling by the court. There are several different bankruptcy options referred to as "chapters." The most common bankruptcy chapter for a young adult in his or her twenties would be a Chapter 7 or Chapter 13 filing.

Chapter 7 works best when you have assets to sell to pay some of your debts. With Chapter 13 filing, some of your debt can be forgiven, but you will have to set up a payment plan to repay the remaining portion of that debt. The goal is to get everything paid in full within five years. The only way you’ll be granted a Chapter 13 filing is with a job and a steady income. Unfortunately, there is no "Get out of jail free" card when it comes to filing for bankruptcy.

The Credit Hit
Bankruptcies can stay on your credit report for a minimum of seven years like a big scarlet "B" on your credit history. The result of this is that you’ll find it extremely difficult to secure a loan for a car or home. Sadly, this is often the time when young adults make these types of purchases. You’ll also find it challenging to apply for credit cards. In many ways, you’ll be out of luck when it comes to borrowing money.

The Bright Side
In some circumstances, taking the credit hit can be a good thing if it keeps your spending in check and forces you to live within your means. And luckily, filing for bankruptcy when you are young does provide you with ample time to recover. Suppose your debt was too much to handle right after graduation and you’re granted a bankruptcy ruling to settle your accounts. By the time you turn 30, you can start on the path toward buying a home without that "B" looming over your head. By living on a budget and forcing yourself to save and pay off debts, you’ll fall into great financial habits that will benefit you in the long run.

If your debt has become too overwhelming, it might be time to reach out and speak with an experienced bankruptcy attorney. They can provide answers to all your questions and make sure you make an informed decision with regard to your financial future.

Photo by Ken Teegardin via cc