"Low Interest," "Zero Down," "Reduced Monthly Payments," "No Annual Fee," ……these are the enticing phrases that can lure people, especially young people, to spend more than they can afford and make them believe that credit cards virtually never need to be paid off. 

 We all enjoy the every day benefits of our free enterprise system, but these freedoms require responsibility.

Each year, lending institutions bombard high school students with credit card applications that promise an endless supply of credit and cash.  Unfortunately, many young people don't know how easy it can be to financially overextend themselves and get into real trouble that will affect their credit rating for years to come.

 According to the National Foundation for Credit Counseling (NFCC), the average credit counseling client has approximately $23,000 in debt with the average income being $29,000 annually.  Young people need to have a basic education in the responsible use of credit cards and certain payment plans BEFORE they find themselves having to turn to credit counselors or worse, in front of a Bankruptcy Court judge.

In addition to learning about how credit cards work, young people need to be aware of what bad credit or filing for bankruptcy can do to their futures.  Last year, 1.6 million bankruptcy cases were filed in the United States with the majority of those being consumer or individual filings.  Often, bankruptcy lawyers will advertise for "hassle-free" or "fast and easy" bankruptcy cases that lead you to believe that filing for bankruptcy will allow you to "get out of" your debts all together.  What the lawyer doesn't tell you is that a bankruptcy case can stay on your credit report for up to 10 years and can hinder your ability to get a job, establish new credit, get insurance and even a place to live. You will also have to pay court, attorney and filing fees up front – creating even more bills to repay!

I recently met with one of our U.S. Bankruptcy Judges for the Eastern District of Tennessee, Thomas Stinnett in Chattanooga, and he told me about an aggressive program to educate high school and college students about the perils of incurring excessive debt.  The National Conference of Bankruptcy Judges, along with Chattanooga State Technical Community College, put together an educational video that depicts the financial devastation of three young people and what happens to them in Bankruptcy Court.

In the video, one young woman had incurred over $115,000 in debt on 26 different credit cards.  With an annual salary of only $36,000, the judge ordered that her wages be garnished for the next 60 months – 5 YEARS – to pay back her creditors.  Another young man purchased a brand new truck on monthly payments that he was barely able to afford. Due to some personal problems, he was unable to make all of the payments and eventually the truck was repossessed and sold at auction – he lost ALL of the money that he had put into the truck.  The final story in the video told of a lawyer who was trying to discharge a student loan from law school (he had also incurred additional debt through credit card use).  Discharging a student loan is very difficult because the judge has to determine that the applicant was a victim of "undue hardship".  The Judge ordered that the man must repay the $50,000 loan because no hardship was found.

These are just a few examples of the real-life situations that bankruptcy judges see every day.  Judge Stinnett is currently working with bankruptcy judges and higher education institutions across the country to bring this information to students before they find themselves in bankruptcy court. This educational video and discussion material can be found at www.ncbj.org. 

These grassroots education efforts will go a long way to teach young people about personal financial responsibility and the perils of "plastic" before they find themselves in bankruptcy court.