Bankruptcy and Graduation


On the outside, these two topics seem to be completely opposite. In reality, they actually have a lot in common. When someone graduates from college, they're getting a fresh start on life and heading out to start a career. On the same note, after filing bankruptcy, a person will also get a fresh start and sometimes start a new career, but a new financial future will be in store for them for sure. We are now at the end of the school year and many young adults are graduating college and heading out into a world that has no jobs. Over the last couple years, because of the unemployment rates nationally, many have continued on with their education getting degrees in other subjects or going further and getting a Masters or even a PhD. This is all understandable as they believe they are making themselves more employable. There is a dark side to doing this. First of all, it actually narrows the focus of jobs that are available for someone with a Masters degree in a field. An employer will not want to hire someone that is more educated than themselves. And the bigger problem is student loan debt. Most of these individuals are borrowing their life into oblivion by continuing on going to school. They are told that the better education may have, the better chance they will have getting a job. In the past, this might've been true but it no longer applies.

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When graduation is supposed to be a happy time, these young adults are going out to the world being buried under a mountain of debt. The sad thing about this kind of debt is, a bankruptcy filing will not even eliminate it. When filing bankruptcy, the only way to include student loan debt in the bankruptcy discharge is to show an undue hardship. For a person to prove an undue hardship, their bankruptcy attorney will have to file a motion with the court showing cause of why this person will suffer a hardship by paying these loans. At the time of graduation, it's next to impossible to prove this, as the bankruptcy judge can't see into the future of what kind of employment this person will have. Typically, it takes a catastrophic accident or illness where the individual will be disabled for their entire adult life and hence be unable to pay back these debts.

Another side effect of this dilemma is many of these young adults will move back in to their parents house and put a drag on the household income. Some of them have even gotten married and will move in with an extended family. When parents are at the retirement age and on a fixed income, they can quickly slide into financial trouble themselves and be forced into bankruptcy.

Watching the news and seeing all these young adults graduating, there is a feeling of despair. Their families are proud and elated not knowing that the future and the US economy really look pretty grim. The U.S. Congress should really take a closer look into changing the bankruptcy laws back to what they were prior to 1998. Prior to 1998, a person filing bankruptcy could include student loan debt in their bankruptcy discharge as long as they had paid on it for seven years. I believe for extreme circumstances, major change needs to take place in the federal government.


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