Dealing with debt at any age is frustrating, but in your 30s it conflicts with your future financial goals and priorities. This is the stage in your life when you hoped to establish your career and earn more, begin building wealth and have some sense of financial security. In your 30s, too much debt can be like a brick wall between you and where you want to go. For some, bankruptcy creates a doorway to a better financial future.
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What debts does someone in their 30s filing insolvency eliminate?
So, who does file bankruptcy in their 30s? Based on our data, the average 30-something filing insolvency owes more than $55,000 in non-mortgage debt.
- 88% are in trouble with credit cards
- 41% turn to high-cost payday loans for cash
- 30% are still repaying student loans
- 42% have a secured car loan or lease
- 33% owe taxes to CRA
The average monthly take-home income of a client in their 30s is $2,700. If in a 2-parent household, the average household income is $4,300. The problem is that most of their income is used for debt repayment.
How can you afford to pay for rent or a mortgage, keep up with living costs and save money if half of your income is used up to pay interest? You can’t. What happens if you continue down this path is that your debt will continue to grow as you use more and more credit to balance your budget.
Will bankruptcy ruin your credit?
Filing a bankruptcy or consumer proposal will lower your credit score initially. How much depends on your starting point. If you are behind on payments, your score is already low and bankruptcy will not have much more of an impact.
Even if your credit score is high, you may not be able to access more credit because any new lender will look at your entire financial situation and consider your debt-to-income ratio to be too high.
Any impact of declaring bankruptcy on your credit is temporary and you can begin the process of rebuilding your credit even while bankrupt.
What will happen to my student loans?
If you have been out of school for seven years, student loan debt can be eliminated through a bankruptcy or consumer proposal.
Roughly one-third of insolvencies for those 30 to 39 involve student debt. In your 30s there is a high chance that you have been out of school long enough to wipe out your remaining student debt through an insolvency proceeding. If you are a year or two away, talk with a Licensed Insolvency Trustee about the option of waiting to file versus filing now to eliminate other unsecured debt that may be affecting your ability to manage your student loan payments.
If you are planning on returning to school, please advise your trustee. Filing a bankruptcy or consumer proposal can impact your ability to obtain future student loans.
Will bankruptcy affect my partner or family?
We know that, among those who file a bankruptcy or proposal in their 30s:
- 36% are married or in a common-law relationship
- 14% are separated or divorced
- 22% are single parents
Being concerned about the impact of bankruptcy on your spouse is understandable.
If your debts are yours alone and your spouse has not co-signed those debts, then your bankruptcy does not affect your spouse’s debts or credit rating. If, however, you have joint debts and you file insolvency to eliminate your responsibility to pay back those debts, the lender will look to the co-signer to collect.
Divorce or separation is a contributing cause to almost 1 in 7 insolvencies for those in their 30s. Where two partners were paying debts on a combined income, that income may now be stretched further due to support payments and double the living costs. It is worth talking to a trustee about whether to file bankruptcy before or after divorce if you are in the midst of both.
Some other things to consider:
- Bankruptcy does not eliminate child support or alimony payments
- Spouses can file a joint bankruptcy or joint consumer proposal for co-signed debts
- You cannot eliminate your obligation for co-signed or joint debt through a divorce or separation agreement. Your lender must agree to remove one spouse from their contractual obligation to repay the debt.
What to do before filing bankruptcy
If you plan to file a bankruptcy or consumer proposal, you can stop paying your credit cards and other unsecured debts while your paperwork is being finalized. This is not something you want to do months before, or if you are uncertain about filing.
If you plan to keep your financed vehicle or home, you can do so as long as you maintain your payments. If you want to get out from an expensive car loan or lease, you can do so by voluntarily surrendering your vehicle and prior to filing bankruptcy.
We also generally recommend you open a new bank account prior to filing. This is especially important if you owe money where you bank. Filing insolvency will not stop your bank from using their legal right of offset to take money from your account if you owe them money. It’s also a good way to ensure that automatic payments on debts to be forgiven in your bankruptcy or proposal do not go through before the creditor processes any notice of your filing.
If you would like to learn more about how a bankruptcy or consumer proposal works, talk with a Licensed Insolvency Trustee today.