Why File Bankruptcy in Your 20s?

Understanding Bankruptcy in Your 20s: An In-depth Analysis

Financial difficulties can hit at any age, but when it comes to people in their 20s, it can be a particularly challenging situation. In this piece, we will dissect the reasons why young people might consider filing for bankruptcy and the implications of this decision.

The Debt Profile of the Average 20-Year-Old

According to a recent study, 17% of all bankruptcies and consumer proposals involved individuals between the ages of 18 and 29. Even with less time to accumulate debt, young adults seem to struggle more with financial burdens than the older generation. The average debt for a 20-year-old filing for bankruptcy is around $42,000, a significant amount considering the age.

The Pitfalls of Easy Credit Access

Young adults often find themselves ensnared in a trap of easily accessible credit. Despite their relatively low credit scores, the allure of instant money can be too tempting to resist. The downside of this is that most credit lines available to them come with high-interest rates, leading to a cycle of debt that’s hard to escape.

The Danger of Payday Loans

48% of young adults between the ages of 18 and 29 have at least one payday loan. Advertisements promising instant cash and the freedom to live life on your terms often lure young people into taking these loans. However, these loans can quickly become a financial burden, with an average debtor aged 18-29 owing nearly $5,000 to multiple payday lenders.

These loans can be discharged by filing for bankruptcy, offering young adults a potential way out of this debt trap.

The Burden of Student Loans

Student loans are another significant contributor to the financial woes of young adults. Nearly 38% of debtors in their 20s are struggling with student loans. Unfortunately, bankruptcy laws do not allow the discharge of government student loans until seven years after leaving school.

However, private student loans, such as student credit cards or lines of credit, can be discharged immediately upon filing for bankruptcy.

Understanding Accounts in Collection

Young debtors often have several accounts in collections. However, having accounts in collection does not necessarily mean that filing for bankruptcy is the only solution. In Ontario, for example, if your debts are older than two years, a court will not grant a judgement, allowing a creditor to collect on that debt.

The Issue of Car Loans

Car loans can be a significant financial stressor for young adults. Our study shows that 42% of debtors between the ages of 18 and 29 had financed or leased a vehicle at the time of filing for bankruptcy. Unfortunately, a third of these individuals owed more than their vehicle’s value.

The average car loan debt for this age group was $17,284 in 2020. Without good credit, many young adults turn to high-cost lenders, leading to larger loan payments and a higher loan-to-asset shortfall.

Evaluating the Decision to File for Bankruptcy in Your 20s

Bankruptcy can offer a fresh start for those grappling with significant debt in their 20s. However, it’s important to understand the potential drawbacks:


  • Student loans less than seven years old cannot be discharged.
  • Bankruptcy remains on your credit report for seven years from completion.
  • A consumer proposal is removed no later than three years after completion.

However, the alternative of living with the burden of thousands of dollars in debt is hardly appealing. Here’s a quick look at some common misconceptions about filing for bankruptcy:


  • Bankruptcy does not generally affect your job prospects.
  • Trustees are paid by government tariff out of the bankruptcy funds, with no separate or upfront fee required.
  • You will be eligible to obtain credit again.
  • Filing for bankruptcy now does not prevent you from buying a car or getting a home mortgage in the future.

Exploring Other Options

Bankruptcy is not the only solution to manage debt. In fact, seven out of ten filers in their 20s choose a consumer proposal over bankruptcy to eliminate debt.

As Licensed Insolvency Trustees, we have the knowledge and experience to help you decide if filing for bankruptcy is the right option for you. If you’re considering this step and would like to discuss your financial situation, please reach out to book a free consultation.

Filing for bankruptcy in your 20s can be a daunting prospect. However, with the right guidance and knowledge, it can be a stepping stone towards a more secure financial future.

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