Posted On: July 28, 2012

Chapter 7 Bankruptcy Can Be a Smart Option in Your 20s

It may seem odd to suggest that filing for a bankruptcy in your 20s is a smart thing to do. After all, financial experts often advise that filing a Chapter 7 should be a last resort. studyingstudent.jpg

However, our Birmingham Chapter 7 bankruptcy lawyers know that if you're struggling with debt now, putting it off until your 30s is only going to create bigger financial headaches for you in the years to come.

In reality, you will have an easier time bouncing back from bankruptcy than someone who is older because you have more time to repair your credit, as well as to establish healthy spending and saving habits.

What's more, you won't find yourself in sparse company.

A recent report released by the Consumer Financial Protection Bureau indicates that American students have accumulated more than $150 billion in private student loan debt. Most of those graduates owe more than they can afford.

A large of number of those graduates, too, may find themselves unable to find work as the economy churns slowly toward recovery. This will be particularly true for new graduates who chose degrees like Liberal Arts or English. It's not that these areas of study aren't valuable, but they don't have a great deal of practical application when it comes to finding a job. With internship programs having been slashed by thousands of companies across the country, showing any sort of valuable work experience is becoming more difficult.

While the $150 billion in private loans are only a fraction of the $1 trillion total outstanding student loans in the country last year, they are particularly problematic for borrowers because they often come with higher interest rates and fewer protections than federal loans. The companies that provide these loans aggressively marketed to students prior to the Recession.

The Consumer Financial Protection Bureau reports that students were often given more in loans than they could have ever hoped to pay back, and in a lot of cases, it was more than was even necessary. For a freshly-minted college student who didn't know any better, this may have essentially seemed like free money at the time. Of course, now many are paying the price.

Another downside of these private loans are that while federal loans allow options, such as a deferment, flexible repayment, forbearance and in some cases forgiveness, private loans often do not. Plus, interest rates aren't fixed, and are often much higher than the federal rate.

Prior to 2005, these private loan debts were dischargeable with a bankruptcy. Unfortunately, they now meet the same standards of discharge as do federal student loans, which is that a graduate has to show undue hardship. This is actually a more difficult burden of proof than you might think.

Proposals have been made to Congress that would require stricter standards for these private lenders, including once again making those debts dischargeable in a bankruptcy. That's something we'll be keeping a close eye on, but for now, it doesn't appear any major changes are going to happen anytime soon.

However, what a bankruptcy can do is free you from the credit card and other debt (such as medical costs) you've racked up while trying to stay afloat.

If you need to speak to an Alabama bankruptcy attorney, contact Eversole Law at 899-831-5292.

Additional Resources:
Private student loan debt reaches $150 billion, Blake Ellis, CNNMoney