In an article titled “Millennials get woke to economic woes” Dave Lee of The Los Angeles Times examines how the COVID-19 pandemic is hitting Millennials particularly hard, economically.
The pandemic tends to affect those of older generations more harshly.
Millennials are forced to shoulder the economic burden by not working during their peak earning years.
These are years where they are trying to climb the financial income ladder and many have entry level jobs.
Additionally, Millennials have some of the highest student loan debt in history.
This combination of high debt and entry level jobs with low wages results in the need to use credit cards to survive. That debt builds up until they are simply unable to make the payments.
Millennials Need To Know Their Bankruptcy Options
Millennials, those born between 1981 to 1996, are currently 39 years old or younger.
Unlike previous generations, the lack of good paying jobs has likely resulted in the high use of credit cards and taking of student and personal loans to stay afloat.
Prior to the Pandemic, most were likely able to scrape by making minimum payments in the hopes a higher paying job was around the corner.
Sure, those furloughed may currently be getting generous supplemental unemployment benefits. But those will not last forever.
The job furloughs or outright terminations will result in a generation defaulting on many of their obligations.
And Millennials, in general, tend to spend more and splurge when their income is reduced.
It may be unusual for those of the younger generation to contemplate bankruptcy, or even know such laws exist.
But it is important to know what the laws provide so bankruptcy can be considered when necessary.
Bankruptcy In General
Bankruptcy laws provide a balance between the debtor’s (party who owes the money) need for a “fresh start” with creditors’ (those to whom money is owed) right to be paid.
Some Things You May Not Know About Bankruptcy Laws
Among many other things, bankruptcy law does the following:
- Enables the debtor to discharge (eliminate), in whole or in part, the legal obligation to pay on most debts.
- Prevents creditors from seeking to collect on discharged debts.
- Stops collection actions immediately when the bankruptcy case is filed.
- Can enable you to remove liens against property
- Stop foreclosure and allow you to catch up on past due mortgage (and vehicle) payments
- Discharge certain tax debts, including sales and income taxes, for some taxes more than 3 years old
- Allow stretching of payment of non-dischargeable tax (and other) debts over 60 months.
What about its effect on credit? [pullquote]See more about how bankruptcy affects credit scores[/pullquote]
In most cases, the effect of bankruptcy on one’s credit is nowhere near as bad as people think.
And, it can be rebuilt more quickly than if bankruptcy is not filed.
The Bankruptcy Chapters
The following are very broad overviews of the main bankruptcy chapters:
[pullquote]See More On The Different Bankruptcy Chapters[/pullquote]
Chapter 7 Bankruptcy:
- Allows debts to be discharged without making any payments
- In return, the debtor must give up any assets which are not exempt (protected) under the laws of the state which applies in their case.
- Allows avoidance (removal) of judicial liens against property if certain criteria are met.
- There are strict income eligibility requirements for Chapter 7.
Chapter 13 Bankruptcy:
Requires monthly payments based on your budget for 36 to 60 months.
It allows for the following:
- Debts can be discharged with potentially less than 100% payment, depending on your budget and value of assets/property.
- Catch up on past due secured debt obligations, such as mortgages and vehicle loan payments.
- Operation of self-employment businesses is allowed.
- Avoidance (removal) of judicial liens against property if certain criteria are met.
- Removal of real estate mortgage liens if certain criteria are met.
- Must have less than $419,275 in liquidated, noncontingent unsecured debt and less than $1,257,850 in liquidated, noncontingent secured debt.
Chapter 11 Bankruptcy
Chapter 11 is basically the same as Chapter 13, except it is much more involved (more paperwork and ongoing administrative requirements.
It does not have a debt limit.
It does in most cases require creditors to vote for your repayment plan, which makes approval more difficult than Chapter 13.
You may have to pay 100% of your debts if you do not get sufficient creditor votes for your repayment plan.
There is a new Subchapter V to Chapter 11 which removes some of these hurdles, but imposes new ones. It is too early to tell exactly how that is going to work.
Have A Consultation With A Bankruptcy Attorney
As the late UCLA Coach John Wooden often said: “Failing to plan, is planning to fail.”
The important point to take away from this post is that bankruptcy laws exist.
They exist to protect, and to help, both debtors and creditors.
When faced with debt problems, you should explore all available options.
Scheduling a consultation with an experienced bankruptcy attorney is very important when evaluating these options and should not be ignored.
Image Courtesy of “Innovaro_Millennials_and_Food_Infographic_splurge” by Innovaro is licensed under CC BY 2.0