Bankruptcy in college

When I started my New Jersey bankruptcy office, I began to advertise in the school newspaper of my Alma Mater, Rutgers University. What I found, and continue to find, is incredibly troubling. More and more young people are attempting to file for bankruptcy protection. This is occurring for several obvious reasons. The first, and likely most important reason is the proliferation of credit card companies on college campuses. Often times credit card companies will link their cards to a giveaway. Sign up to get pre-approved for a card, and receive free basketball tickets, hats, etc. Obviously, at the age of 18, this seems incredibly appealing. Before you know it, you’ve signed up for 4 credit cards and you begin to use them. You think you will simply pay the minimum each month, but as month after month passes by, and interest rate increases your balance, you realize that you wont be able to pay off these high balances.

Ok, big deal, you’re in some debt and you now need to file for bankruptcy. Here’s why this is such a big deal:

  1. Your credit rating is in the toilet like a frat brother after a party. What does that mean to you? That means not being able to qualify for a mortgage, car loan, and…wait for it….STUDENT LOANS. You’re flat screen TV purchase just precluded you from qualifying for student loans for your senior year (unless you have a cosigner). Or, you’ll get these loans with absurdly high interest rates, making it all the more difficult to pay off.
  2. Employers check your credit report. While it is against the law to not hire, or to fire, an individual based on whether or not they have filed for bankruptcy, employers will nevertheless not look at it as a plus when making a determination as to who to hire. It’s clear that there also is a distinction between finding a 40 year old single mother filing for bankruptcy because she is having a tough time paying the bills after an illness, and an 18 year old college student filing for Bankruptcy.
  3. You will have serious issues filing bankruptcy again, if you ever need to. A bankruptcy petition asks whether or not you have filed for bankruptcy in the last 8 years. Let’s say you’ve bought everything you could fit into your car at Best Buy at the age of 21 and now have to file for Bankruptcy. That means for 8 years thereafter, you have to be perfect, or close to perfect financially speaking. You’ll be more weary of purchasing a house because you’ll know it will be tough to file for bankruptcy again. It will affect many life decisions that individuals make around the time they graduate college (you’ll also have a hard time going to grad school without student loans).

Again, this post isn’t intended to suggest that all young adults who file for bankruptcy are irresponsible individuals who aren’t mature enough to handle credit cards and have no grasp of financial discipline. It’s to suggest that the vast majority are not. Having said that, the price you will pay for your financial mistakes when you are younger may be more than you would pay if you were filing for bankruptcy in your 40’s or 50’s. Our younger years are when we decide what career path to take, if we should purchase our first home, if we should pursue advanced degrees, etc. Taking all of that into account, it is clear that young adults should be that much more careful about applying for credit. The consequences are staggering if they don’t use credit with a mature discipline.