While working as a bankruptcy paralegal I had a surprising number of young adults call to ask the same question: “How old do I have to be to file bankruptcy?” The answer is fairly simple: there is no specific age restriction, but typically you have to be 18 to incur most types of debt (i.e credit cards and personal loans) so in most cases filers are 18 or older. There are tons of reasons why going bankrupt soon after your eighteenth birthday is not the smartest thing to do, but lets just start with the top 3:
- Troubling Your Mid 20s: According to the United States Bankruptcy Code, an individual can only file for Chapter 7 bankruptcy protection every 8 years. This means that if you file bankruptcy at the age of 18, you are putting your finances at risk until you are at least 26 years old. We all know that dozens of life changing events happen to people between the ages of 18-26 including college, marriage, children, and in some cases even purchasing a home and/or vehicle; these things will be more difficult to finance if you already have bankruptcy on your credit record.
- Risking Student Loan Eligibility: If an individual files for bankruptcy protection at the age of 18 and then seeks the help of federal or private student loans to pursue higher education they may face tougher eligibility requirements than other students who do not. Federal student loans are not likely to discriminate based on a bankruptcy, and in most cases they do not; the trouble with eligibility typically comes when students apply for private student loans after filing personal bankruptcy. Many private student loan companies have credit criteria that preclude people with a bankruptcy within the past 7 or 10 years from borrowing without a creditworthy cosigner.
- Harming Your Fresh Credit Report: Like I mentioned earlier the age of 18 is the earliest that most credit card companies will allow individuals to receive credit lines, so by filing bankruptcy soon after that you will have the mark of bankruptcy on your credit report for 7-10 years and negate that clean record you had as an 18 year old. Although that bankruptcy mark will not make it impossible to be approved for new credit, it does make things more difficult.
All of this is not to say that going bankrupt in your early 20s is a terrible decision, and it may be exactly what you need to jump start your finances in the right direction. You should just be aware of the effects bankruptcies have on individuals during and after their case is completed and also the alternatives to filing at all. Contact your credit card companies if you are a new customer and feel yourself starting to struggle with payments, or as friends or family for sound financial advice. If you are young and considering bankruptcy protection for the first time it may be in your best interest to not try to file bankruptcy yourself, and instead hire a bankruptcy lawyer to help you throughout the process.