It doesn’t happen often, but people as young as 18 have had to file bankruptcy in Canada. On average, about 12% of all insolvencies (both bankruptcies and consumer proposals) are filed by people between the ages of 18 and 29. And the truth is, it doesn’t take much debt to tip the scales towards bankruptcy when you are that young. In fact, the average debtor in their twenties owes less than $33,000 in unsecured debts that they can’t repay.
So how do you know whether or not you should file for bankruptcy in your twenties, or at a minimum talk to a bankruptcy trustee about your financial situation? Here are some things to consider:
How old are your student loans?
One of the most common debts among young people today is student loans. You need to know that not all student loans are forgiven by filing bankruptcy in Canada. For your student loans to be included in a bankruptcy, you must have been out of school for 7 years. So if you just graduated, your student loans will remain with you, even if you declare bankruptcy. There are exceptions which would allow you to apply to the court to include your student loans in a bankruptcy after 5 years however you will need to prove financial hardship.
If all you have are student loans, and you have not been out of school for at least 5 years, bankruptcy will not help.
If your student loans are older than 7 years (5 years if you believe your student loans are causing your hardship), or you have significant other debts that you are unable to repay, talking to a trustee about bankruptcy may make sense.
Are you creditor proof?
The purpose behind filing bankruptcy is to obtain protection from actions that can be taken by your creditors to collect on your debts. This includes collection calls, legal proceedings and wage garnishments.
If you are not working, and have no wages or income, you can’t pay your debts but your creditors really don’t have a lot of options either. While your creditors can sue you, they won’t be able to enforce collection because you have no income to garnish.
When you file bankruptcy, you will be required to make a base monthly payment to your trustee to cover the costs of administering your file. If you are not working you may find affording these payments difficult.
In this situation, it may make more sense to wait to file for bankruptcy until you find employment. At that time, you can talk to a trustee about whether you should file bankruptcy, or consider a consumer proposal, to deal with your outstanding debts. Which option is better will depend upon your income level, among other factors, once you return to work.
We should note however that the one creditor who may still have some collection options is the Canada Revenue Agency. If you owe CRA unpaid taxes, or you owe on government student loans, they will be able to keep any tax refunds you may otherwise be entitled to, and apply those amounts to your outstanding debts.
Do you have any assets?
You’re young, so you may not have accumulated a lot of assets yet. Filing bankruptcy requires that you hand over to your trustee, for the benefit of your creditors, all non-exempt assets. You are entitle to keep certain assets, including a vehicle up to a certain dollar value in most provinces.
Why should you file so young?
If you are struggling with debts in your twenties, one advantage of filing now is the ability to clean up your debts while you are young. By filing now, you will have time to recover and develop good credit by the time you are in your thirties.
Bankruptcy is not an easy way out at any age. If you are struggling with debt, contact a trustee and talk about your options. A phone call, or email doesn’t cost anything, and it might help.