How to Avoid Filing For Bankruptcy if You Are Under 30
Written by: Kristy Welsh
Last Updated: October 3, 2017
When you're deep in debt and under the age of 30, it feels like you're going one step forward and two steps back. You might be just getting started in your career, but all the money you make goes toward bills instead of building the kind of savings and investments you may equate with success. For this reason, it's tempting to flirt with the idea of filing for bankruptcy, for the second chance it gives you at a clean slate. But here's the thing: it's probably not as clean as you think.
Bankruptcy Will Not Discharge Student Loans or Recent Income Taxes
If the debt you're having trouble paying includes student loans or recent income taxes, keep in mind that bankruptcy will not discharge either one. Student loans are exempt and the only income taxes that could possibly qualify are those more than three years old. So before starting bankruptcy proceedings, make a list of other debts that could qualify.
Dischargeable debts may include:
- Credit card debt
- Auto loans and leases
- Apartment and home leases
- Medical debt
- Business debt
Take the time to explore your negotiation and payment plan options for each one of these categories. Bankruptcy stays on your credit report for 7 to 10 years, at which time you're then faced with the challenge of rebuilding your credit score. If you can make arrangements to pay off your debts in even half that time, it's an alternative well worth your consideration.
Bankruptcy Damages Your Credit For Years to Come
As you know, lenders don't like to see a bankruptcy on your credit report. So you can expect it to negatively affect your credit worthiness. A Chapter 7 bankruptcy will stay on your credit for 10 years and a Chapter 13 bankruptcy will be on your credit for the next 7 years. This does not even take into consideration the time it will take to rebuild your credit score once the bankruptcies fall off your credit report.
In the meantime, if you have decent credit now — say 700 — you can expect it to fall 100 to 150 points, to 600 or lower. If you already have a credit score below 600, you may not see it fall quite so far — maybe 30 to 50 points — but the state of your credit will be the same: guaranteed be poor, for a very long time.
If you file bankruptcy, you can expect to find it difficult, if not impossible, to qualify for:
- Credit cards
- Auto loans
- Home loans
Not planning on buying a home anyway? Well, you may find it equally challenging to rent a house or apartment with a bankruptcy on your credit report, as it speaks volumes to landlords looking for responsible tenants who pay their bills. Plus, there's the added expense you will no doubt face when trying to open accounts for utilities, for which those with low credit scores are required to pay deposits.
Time is on Your Side
We all have financial goals for ourselves, be it in our 20's, 30's, 40's, or beyond. So it's certainly natural to feel frustrated with this un-manageable debt looming over you. Fortunately though, with responsible, focused attention, you can pay down your debt in plenty of time to realize your financial goals. The "clean slate" of bankruptcy not only stains your credit for 7 to 10 years, but it robs you of the character-building opportunity to learn now, while you're still so young, how to manage your money in a way that will reap you huge benefits in your long, lucrative future.
All of this is not say bankruptcy is definitely not the best option for you, as everyone's situation is unique. Please take the time to review our other articles on bankruptcy to determine your wisest course of action.