Our debt problems are beginning earlier and earlier.
As recent news stories have illustrated, American students collectively hold one trillion dollars in student loan debt. In addition to school loans, most recent graduates leave school with the burden of credit card debt and car loans.
While this is bad news for young adults, it's also bad news for parents and grandparents.
Because few lenders are willing to take a risk on teens and 20-somethings with little credit history, adult relatives frequently co-sign credit cards and loans for young adults.
While co-signing is one way to help your child establish credit, it can backfire if your son or daughter can't make payments. In fact, co-signed loans are one reason that more Georgia residents are seeking protection through Atlanta bankruptcy.
A recent Business Insider articles estimates that three out of four borrowers defaults on loans, leaving the co-signers liable.
It's not that today's youth are especially irresponsible; it's just that, in today's economic climate, it's impossible to guarantee a young adult will have the income to make pricey payments. Tuition and the cost-of-living are skyrocketing, while jobs for students and new grads remain scarce.
If circumstances prevent the primary borrower from paying back the loan, the co-signer becomes responsible. As a result, lenders can go after your house, car, and life's savings. Meanwhile, the good credit you worked your entire life to build can quickly disappear. Your child will also suffer from a lowered credit score, but you'll be the one pursued by bill collectors.
Bailing out our children does nothing to teach them about managing money. In many cases, a more realistic solution is to lend a loved one money directly (if you can afford it, of course), reducing the need for an outside lender - and reducing the risk of credit damage and liability in the instance of a default.
For young adults over their head in credit card debt, filing for bankruptcy in Atlanta can offer a chance to start over on the right foot. Chapter 13 bankruptcy protection can reorganize debt with a payment plan, preventing default and protecting the co-signer.
Student debt poses a challenge because it is not eligible for release with bankruptcy. However, because bankruptcy can reduce other forms of debt, it may be able to free up funds for making school loan payments.
Young adults must often make financial mistakes to learn how credit really works. However, as adults, we shouldn't be paying for our kids' mistakes. If you're burdened by debt, whether it's someone else's or your own, Atlanta bankruptcy may provide relief.
More Blog Entries:
Credit Card Debt in Atlanta Often Has the Same Root Causes: February 15, 2012
Why Co-Signing For Your Kids Is a Terrible Idea, by Tara Struyk, Business Insider