Today, young people may be more vulnerable to falling into early bankruptcy than at any other time. Although America appears to be in a slow state of economic recovery, the rate of Chapter 7 bankruptcy filings remain considerably higher than just 10 years ago. Three of the highest personal financial obligations that the average person carries are credit card debt, student loans and the monthly mortgage. When young people starting out in careers and growing their families run into financial difficulties, these burdens can become a recipe for disaster.
During the last half-century, the culture has become increasingly comfortable carrying personal debt. Forbes reported that the average household now bears the burden of $200,000 in overall debt despite a mean income of only $55,000. At the center of this upside-down equation are credit card debt, mortgage payments and student loans. Revolving debt hit $3.34 trillion last year and nearly one-third of that was credit card debt. An average household today shoulders more than $5,000 in credit card debt, the highest of any era.
Since 2007, many households have been operating in the red because of fast-rising student loan obligations, according to the Congressional Budget Office. Student loan debt leapt from $29,000 in 2007 to a staggering $41,000 in 2013 and is projected to keep rising. This downward trending financial house of cards places young families in a position that one bad illness or loss of employment can force them into filing Chapter 7 bankruptcy.
Having to clear out debt in a Chapter 7 filing is an unwelcome reality, but it may be the only way to save someone’s financial future. The courts generally exempt certain types of property from being seized or sold to pay creditors. These exemptions commonly include:
- Life Insurance
- Child Support
- Veteran benefits
But when it comes to saving your home, things can get complicated. Whether you are behind on your mortgage payments will have a tremendous impact on keeping your home or not. Many states have what is known as a “homestead exemption” that helps protect homeowners from being put on the street. However, if you are behind with the bank, you may need to mount a foreclosure defense.
Saving Your Home
It’s safe to say that no one in America is unaware of the predatory lending schemes banks employed. Judges are more inclined to consider those practices when someone brings a foreclosure defense. The process of getting in front of a judge varies from state to state. About half the states automatically send foreclosure matters to court. In other states, people need to file a civil lawsuit to be heard. There are three basic foreclosure defense arguments.
- Unfair Mortgage Terms: This stems from the predatory lending practices that caused mass foreclosures after the housing bubble burst. A judge may determine that your mortgage has grossly unfair terms. As they say in legal jargon, it is “unconscionable.”
- Active Service: The brave men and women serving in the military are protected under the Service Members Civil Relief Act. The SCRA allows them postponements while on active duty among other protections.
- Procedural Defense: If a lender doesn’t follow all of the technical requirements of a foreclosure case, they can be made to begin the process all over. This may provide time to get caught up on payments.
The ability of college graduates and young people that want to own a home and start a family has grown increasing costly. While there has been a cultural shift to be comfortable with negative debt-to-income ratios, the numbers show that unforeseen circumstances can disrupt financial stability and futures.