I have discussed bankruptcy with many clients, young and old. It is hard enough for people to come to the decision that they will file for bankruptcy protection. Harder still is the decision to file for bankruptcy when you are very young. By young, I mean, someone under age 30. This can be a controversial issue for people.
The first question I ask the very young clients is, “How did you get so much debt?” Most of the time, the client responds that they used student loans for the college tuition, and they used credit cards to “live on”. While this is not the “right way” it should work, it is a problem that many young people have. They were expecting to pay the student loans and credit cards off after they got their job out of college. With the recession still going on, and a very slow recovery, jobs are scarce for new grads. Many are moving back in with their parents until they can find a job. Or, many are getting very low-paying jobs, and are under-employed.
There is an advantage to filing bankruptcy when you are young: you have many years to recover and get your credit score back up, in time for major purchases later on. The disadvantage is that you will have higher credit costs in the short term.
To make matters worse, student loans generally cannot be discharged (eliminated) in a bankruptcy. A bankruptcy case can temporarily stop student loan collections in a Chapter 7 case. In a Chapter 13 case, you can pay a percentage of the student loans, but will have to look forward to paying the balance owed, plus interest, after the Chapter 13 plan is completed. I call this a “holding pattern” on the student loans, but it does give some people a bit of relief, especially when their loans can’t be deferred anymore. To be in a Chapter 13 though, you need regular income from a job or other source.
So, what is a young person to do? It is best to seek out a good attorney, who knows bankruptcy laws and collection laws well, and review all of your options. There is no “one size fits all” kind of answer.
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Daniel J. Winter
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