by Samantha Miller
Bankruptcy is a scary word.
As young people, we are taught families have to file for bankruptcy because they have failed in their lives: at their finances, at their jobs, at all of their goals. Most of us know that isn’t usually the case, but the connotation behind bankruptcy persists.
There is an upside to bankruptcy numbers, however. Today’s young people, men and women ages 18-35, typically only make up 23% of the total bankruptcy numbers. These numbers are also trending down since more and more young people are becoming more fiscally responsible.
These numbers are also going down because young people choose to forgo many of the traditional financial responsibilities that older generations upheld. For example, substantial financial burdens like houses, cars, physical business locations, and non-necessary medical procedures are less likely to be purchased by today’s young people. While having these things doesn’t automatically result in a person needing to file for bankruptcy, financial illiteracy around these items can lead to bankruptcy.
For most of us, we understand what motivates someone 45 and older to file for bankruptcy. But what would motivate a young person to choose bankruptcy? There are some young people who choose this road as a means of having a fresh start.
Nav.it interviewed one couple about their choices about bankruptcy and how their lives have changed since their filing was finalized.
Before we begin, here are some stats about our interviewee, Chelsea, and her family:
- Chelsea just finished her high school diploma and associate’s degree.
- She plans to get a Ph.D. in nursing and become a midwife! She currently works for Amazon.
- Her husband, Cameron, is a journeyman electrician and studying to become a Master Electrician.
- They have two children, a 10-year-old boy and a four-year-old girl.
- Their son is enrolled in a STEM school as well as the gifted and talented program. They pay quarterly and yearly fees for him to attend the school he does.
- Their daughter is in pre-K, in a free program.
- They live in Northglenn, Colorado. This is north of Denver, but most consider it part of Denver since everything is so connected.
What was your financial education before filing for bankruptcy?
Neither Cam nor I had any kind of financial education. All of our parents assumed we would just figure it out like they did. Most of what we know is actually through trial and error. Or when we had a question and we Googled it.
Why did you choose to file for bankruptcy?
Truthfully, we viewed bankruptcy as an easy way to start over. We had so much medical debt from my husband’s decision not to buy health insurance (not his brightest idea!) that there were few options to pay it off. We tried getting personal or bank loans to pay everything off. We also tried consolidating. Neither were options. So, we filed for Chapter 7 bankruptcy.
We both tried to get better jobs, but the interest was killing us no matter what we did.
Our debt took seven years to accumulate to where it did. Unfortunately, it was the high interest on Cam’s medical bills that did us in: we paid and paid on those for the first year and got absolutely nowhere. We were dumb, ultimately letting the bills go into collections for a full six years.
During that time, Cam was making money, but we couldn’t really buy anything. I had the credit, but mine was never that good. I didn’t know what to do to build my credit, and I honestly didn’t care about it too much besides. I thought, “there is plenty of time to get all this figured out!”
But, we honestly also made several financial mistakes in between. We bought two cars, and Cam bought a Harley, even though the bike WAS NOT necessary. We needed the vehicles to get to and from work, and we wanted nice cars. So instead of going to all of the financial advice we had been told about cars, we ignored it. We know NOW not to do that, but four years ago, we didn’t care. We thought we would get it eventually.
What was the breakdown of your total debt before bankruptcy?
Medical Debt Left: $15,365
- Original medical debt: $20,000
- Interest Rate, which accumulated monthly: 9%
- Interested Accumulated: $12,600
- Medical Debt Paid: $17,235
Car Debt: $37,000
Comcast Bill: $2,569
What debt was left after bankruptcy?
On paper, we have no debt. We still owe for the cars and the bike, but that’s paid to a third party instead of the three dealerships. The payment is also more manageable than it was before. All of the rest of the debt was “wiped clean.”
How much money did you owe for the bankruptcy?
We had to pay a lawyer and attend a financial class. The lawyer was $1800, and the course was $400. The lawyer had to be paid in cash, so it took us a little while to get it to where we could pay him. He was the cheapest option we found, but he also wouldn’t take payments.
When was your bankruptcy finalized?
August 2020. We were lucky that we had started before the COVID pandemic: many other people are still waiting on their decisions from the court.
How has filing for bankruptcy helped your credit?
Before, Cam had a 425 credit score. Now, he has almost 700. My score hasn’t changed, it has always stayed around the 600 mark. We are both ok with this since we actually understand credit scores.
I was also finally able to get a credit card. It has a $300 limit and a 29.63% APR. This isn’t much for many people, but it’s everything for me. I can slowly build up my credit and feel responsible for doing it.
How has filing for bankruptcy hurt your credit?
I wouldn’t say it’s hurt since Cam’s credit actually got better. It doesn’t seem to really have affected mine. But, it will make it hard to buy a house for a long time, especially since our finances aren’t where they should be. Overall it will look bad that we filed for bankruptcy, but after it’s gone, we should be better on track.
How are you doing your finances differently now?
Taking that financial class after the bankruptcy was beneficial. I also started educating myself more about the best ways to accomplish my financial goals.
I do several things differently that I didn’t do before:
- Budgeting: I write down everything we spend
- I keep track of all receipts and everything Cam spends, whether he likes it or not
- I have studied all of the money-saving hacks out there, including clipping coupons and things like how to make your own washer fluid. Some of this stuff is great, others not so much.
- I always pay for the cars on time, I don’t miss a single payment. If Cam has to go with cigarettes or if I have to forgo buying cookies for the kids, that is what I will do.
- I pay my credit card off every single month, and I don’t leave a balance.
What about your overall life goals?
We want to buy a house for our kids to grow up in. We also want to be able to travel since neither of us had a chance to do that as kids.
Our ideal home would be three bedrooms, three bathrooms, with a yard. We have two dogs and two cats and want to give them more space. I also want my kids to have their own rooms, rather than having to share one.
More facts about bankruptcy:
Just like with the gender pay gap, there is a difference in which gender files more bankruptcy. Although the accumulated average numbers, 49.2% men to 50.8% women, don’t seem that different, they really are. From 2006 to 2010, women actually filed for bankruptcy more often than men: usually 55-58% to men’s 45-50%.
64% of the bankruptcy filings in the United States from 2005 – 2019 were actually performed by married couples. Does this number surprise you?
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