To determine when or if to file a bankruptcy case requires one to examine multiple factors.

Age is not really a critical factor–as explained more fully below–but it is one to consider.  [pullquote]More on Bankruptcy Issues Unique To Elderly/Seniors[/pullquote]

A 23 year old is going to have different goals than someone who is, say,  60 or 75.

Older people do not own exclusive rights to financial problems.  It happens to those more junior in years as well.

Factors To Consider Before Filing Bankruptcy

To decide whether to file bankruptcy, the best thing to do is schedule a consultation with an experienced bankruptcy attorney in your state to go over all the relevant factors.  But here are a few questions to consider:

Do you have a debt amount that you cannot repay in a reasonable amount of time?

Those who are younger generally have lower incomes than their more senior counterparts.  When you are just starting out, that is the reality and a debt amount that would not be as big a deal to someone earning more can be insurmountable.

Let’s say you are 24 and just out of school.  You have a job, but you are at a starting salary of $45,000 a year which is just enough to cover your normal living expenses.   You have $50,000 of student loan debts coming due.  You also have about $5,000 in credit card debt and you just had an unexpected  trip to the emergency room that racked up another $7,000 in fees not covered by (if you even had) insurance.  Since student loans are presently not dischargeable in bankruptcy, you have about $12,000 of debt you can have relieved in bankruptcy.

Is it worth it to file bankruptcy?  Very possibly.

$12,000 is not typically an overwhelming debt to a 50 year old (although it certainly can be).  But to someone just starting out, it can take way too long to dig your way out of the hole.

Examine how long it will take you to repay the debt given your current income.  Do the same analysis if you expect your income to increase in the near future.  Do you have this paid off within 5 years (including interest accrual)?

Are you planning to incur more debt in the near future?

Are you going back to school?  Need more student loans?  Need to buy a car?  A House?

You may need to eliminate existing debts first before saddling yourself with new ones.

How is your Credit Score currently?

Filing bankruptcy can affect your credit score negatively in the short term, but it really depends on how low, or high, your score is currently.   If you are at an 800 now, then yes filing bankruptcy is going to cause a drop.  If you’re at 500, it will likely increase. [pullquote]More on how bankruptcy affects your credit score [/pullquote]

Any drop in score is always temporary as bankruptcy enables you to rebuild your credit relatively quickly after it is completed.   This is less of an issue for someone younger (20s or 30s) than it is for the more mature (40s and 50s).  It is usually also less of an issue for those in their retirement years (65+).

Do you have a lot of assets/property?

Younger people typically do not own a lot of assets.  But if you do, you need to examine how they might be affected by a bankruptcy filing.

In Chapter 7, you only get to keep assets which are exempted under applicable law.  [pullquote]More on exemptions in bankruptcy[/pullquote]

In Chapter 13 you get to keep all your assets, but it might require you to pay out more to your creditors.

Having more assets certainly does not mean bankruptcy is not an option.  But it may change which Chapter you file and is merely one more factor to evaluate when making a decision.

What Does Age Have To Do With Filing Bankruptcy?

If you examine the above factors in light of your age, it may impact you differently depending on your age.

When you are younger:

  • you have more time to rebuild your credit.
  • You have more time  to achieve a higher paying job.
  • You likely do not have as many assets to protect as someone who is older
  • You have more time to buy a home, etc.

When deciding what to do, it is important to balance your goals with the reality of your ability to deal with your debts.

Does it make sense to struggle for years trying to pay the debt, only to find out that the balance you owe has increased and you need to file bankruptcy later?  Delaying the inevitable is not a good tactic.   Use your time wisely.

Would you rather be 25 and debt free, or age 35 and having to start the bankruptcy process then?

As you get older, raise a family, you have more need of pristine credit to purchase a home, vehicles, and take out other loans.  But even in this age range, bankruptcy can be far preferable to alternatives.  And, as discussed below, the negative effect on credit is temporary.

But as you get even older, the pendulum swings back again because most people over 60 are not looking to take out large loans.

Bankruptcy Negative Effect On Credit Is Temporary

Once a bankruptcy case is completed and a discharge of debts obtained, one can start to rebuild their credit.  And this usually happens fairly quickly.   Most of my clients are able to qualify for a home loan within a couple years after their case is over.

Most who file bankruptcy already have terrible credit scores.  They have missed payments; and possibly had judgments, evictions, liens and so forth.  So in those instances, filing bankruptcy can only improve the credit score.

If you have great credit now but are about to default on all your debts, your good credit score is short-lived anyway.

Always Consult First With A Bankruptcy Attorney

I bring this up because there is a lot to consider when weighing the pros and cons of filing a bankruptcy case.  There are many factors to analyze and everyone’s situation is different.  That is why it is very important to have a comprehensive consultation with an experienced bankruptcy attorney who can evaluate your situation and advise you on the best route to take.

Image courtesy of CarissaRogers