Maryland Bar Bulletin
Publications : Bar Bulletin : April 2010

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Since the start of the economic crisis, considerable attention has been paid to its effect on various groups; however, few articles have focused on the plight of the young professional. This article highlights several common issues faced by this demographic.

The Importance of Monitoring Cash Flow

Just like other Americans, many young professionals have had difficulty adjusting to cash flow changes. Recently, this trend has increased. The 2009 Annual Consumer Bankruptcy Demographics Report included Americans earning $40,000 or more a year and Americans with an Associates or Bachelors degree amongst groups that have demonstrated a significant uptick in financial hardship. According to one Maryland attorney, when her firm’s business slowed this past winter she found herself having a difficult time adjusting her spending habits.

“Definitely, I was struggling to pay the rent,” she admits. “But my habits didn’t change … Luckily, things have picked up since then.  But, I see where I needed to change but didn’t.”

It’s great when things turn around, but sometimes they don’t. Left unchecked, a visit to a bankruptcy attorney can happen sooner than one thinks. This problem takes on new meaning when applied to higher-earning individuals. Individuals that earn, on average, more than their state’s median could be prevented from filing under Chapter 7. This means that items such as unsecured credit card debts must be repaid over three to five years through a Chapter 13 plan, as opposed to being simply liquidated and discharged as would be the case under Chapter 7.

The Trouble with Student Loans

The cost of a professional degree has risen dramatically. According to Finaid.org, the average student loan debt for undergraduate and law degrees combined was nearly $93,000 in 2007-08. Many times, this high cost is justified by the expectation of a high graduating salary. However, when that salary for whatever reason does not materialize, it can be discouraging and may leave one wondering what they paid for. As one Maryland attorney notes, “It [the size of student loans] seems unfair because it seems impossible to pay back.” To add insult to injury, student loan debt can only be discharged if a bankruptcy court finds that repayment would impose undue hardship. In practice, this means that it is highly unlikely that one’s student loan debt will be discharged. The pressure that many feel regarding student loans is real.

IT'S GREAT
when things turn around, but sometimes they don't..

“At my law firm, there were layoffs, especially of junior associates,” one attorney explains. “Thankfully, I was not laid off, but I know many people who were. Like me, they are saddled with large law school debt ($100,000+) and have been thrust into an economy where there is little legal hiring (and a large and talented pool of young out-of-work attorneys, making finding a new job even harder). To compensate, I know of a few people who have gone back to school or left the profession entirely.”

This problem is not limited to lawyers. A recent Wall Street Journal article highlighted the case of a 41-year-old general practitioner who borrowed $250,000 to pay for medical school and now owes more than $555,000 due to default charges, deferments and compounding interest. The woman expects to never be able to repay her debt. This problem is particularly worrisome for parents that have agreed to be co-signors for their children during more favorable economic times. Should problems with student loan debt arise, contact the loan servicer for information immediately.  

Shame

Faced with fewer job openings, lower salaries and high debt, some young professionals are unwilling to realistically assess their financial situation. There is often a certain amount of shame or sense of failure in admitting that things are not going as they would like and that they are having difficulty meeting financial obligations.

“Young professionals…are likely to wrap up their self-worth in [their] job because it brings money and prestige and it is the culmination of years of work,” one attorney explains. “It is a huge blow to the ego to suddenly be out on the streets after putting in so much work and energy. Because of that environment, one often [feels] the need to invest more into one’s job than is probably healthy, so more is at stake when the job is gone.”

While feelings of shame, though misplaced, are common, they should not prevent one from critically analyzing their situation and taking prompt corrective action if needed.

Conclusion

Above all else, recognizing when one may be getting into financial trouble and taking early steps to rectify the situation is crucial to emerging from this recession in the best possible financial position.

Stacy R. Pace practices consumer law in Maryland and the District of Columbia.


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Publications : Bar Bulletin: April 2010

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