Debt Burdens on Younger Borrowers Lessen, Economy a Factor

The youth of America did not escape the recession unscathed by any means. inblue.jpg

However, our Louisville Chapter 7 bankruptcy lawyers understand that the psychological impact of the experience has prompted those under the age of 35 to take on less credit card debt, purchase fewer cars and delay plans to buy a home.

That’s according to a recent study, titled “Young Adults After the Recession,” by the Pew Research Center. Between 2007 and 2010, the median debt of Americans headed by a person 35 or younger dropped by nearly 30 percent, from $22,000 to about $15,500. That was a far more dramatic dip than what we saw with regard to older Americans with debt, whose overall debt dipped by 8 percent.

The important thing to note about this, though, is that a big reason for that decrease has less to do with tighter budgets and more to do with the housing crisis that started the recession in the first place. Ownership of residential property accounts for approximately three-fourths of the average person’s debt in the U.S. When the bottom of the housing market was ripped out from underneath us all, millions of people were underwater on their payments and many, many homes were foreclosed upon. More continue to struggle to keep up with the payments while the government tries to sort out how it’s going to handle the wrongdoing by the banks.

The Pew researchers found that the number of people in the U.S. under the age of 35 who own a home fell to 34 percent as of 2011. That same cohort was at 40 percent in 2007. Compare that to over-35 borrowers, whose overall home ownership rates fell by just 2 percent.

Some of this is directly related to the housing crisis, while the rest has to do with the fact that it’s harder to get a job. No job (or not having an ideal job) has caused many younger folks to hold off on buying a home, where they would have if the economy was better. Plus, banks are tighter than ever about handing out home loans, which is a deterrent for a lot of folks who don’t have a lump sum of money for a down payment.

This is another reason why younger people are also waiting longer before starting a family. Children, as any parent knows, cost money and can drive up your debt-to-income ratio.

So it’s not so much that people are suddenly becoming so much better at managing money. Rather, they aren’t being given the opportunity to get the loans.

And yet another factor in all of this, one that wasn’t widely discussed by the media, is that many Americans sought relief through a bankruptcy. The American Bankruptcy Institute reports that non-business bankruptcy filings in Kentucky totaled nearly 17,000 in 2007, 21,000 in 2008, 25,000 in 2009, another 25,000 in 2010 and then tapering off somewhat with 21,000 in 2011, the latest year for which figures are available. The vast majority of these filings are Chapter 7 cases, which allow individuals to completely erase most of existing debt (save for things like student loans, taxes and child support).

Certainly, we don’t want to minimize the effect that the recession has had on our collective psyches, but it’s worth being transparent about the causes of this massive debt reduction among younger people.

As nearly 110,000 Kentuckians have learned in those five years, bankruptcy can provide a fresh start to the rest of your life.

The experienced Louisville bankruptcy lawyers at Schwartz Bankruptcy Law Center can be reached at 866-270-4495.

Additional Resources:
Household debt falls sharply among younger Americans: study, Feb. 17, 2013, By Heather Struck, Reuters
More Blog Entries:
Louisville Bankruptcies Often Spurred By Sky-High Medical Debts, Feb. 6, 2013, Louisville Chapter 7 Bankruptcy Lawyer Blog

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