According to the Wall Street Journal, the period of time between college graduation and “adulthood” is rapidly widening. This is putting more strain on the pocketbooks of parents. The ragged state of the economy has only heightened the stress of this trend.

A recent survey showed that 41 percent of parents of children between the ages of 23 and 28 are having to provide at least some financial help for their adult children. There are a few factors that have led to this phenomenon.

• High Unemployment: The unemployment rate for adults between the ages of 20 and 24 is about 15 percent, which outpaces the overall unemployment rate of 9.7 percent. Unemployed members of this age group simply lack enough cash to live independently.
• Rising Student Debt: In 2008, roughly two-thirds of graduates left college with student debt. This debt averaged about $23,200, representing an increase of more than $4,000 compared with 2004 graduates. Higher debt payments lead to less spending money, which often forces children to stay home well after they graduate.

To be fair, not every adult child that remains financially dependent on their parents are completely indigent. In fact, many adult children only rely on their parents to pay a few specific bills. However, these bills are often quite costly.

Most Common Expenses Covered by Parents

• Credit Cards: The recently enacted Credit Card Act requires parents to cosign on a credit card with most young adults under 21. While this effort was aimed at protecting young credit-seekers, it has harmed some parents by forcing them to cover debts their children fail to pay.
• Health Insurance: The new health-care legislation will allow children to stay on their parents’ health plans until they turn 26. This is good news for young adults who cannot afford their own plans, but it could potentially raise parents’ insurance costs.
• Cell Phones: Parents and their children often take advantage of cost effective family plans. While these payments are relatively small, extra features used by young adults such as text messaging and Internet browsing can add costs in a hurry.
• Housing: Often, renting a first apartment requires giving the landlord a hefty security deposit on top of the first month’s rent. Many graduates cannot afford this initial payment, even if they are employed. Parents frequently have to contribute to initial housing costs in order to set their children on the path to financial independence.

Additional Resources

For more information on unemployment and young adults, visit the National Center for Education Statistics.

First, the good news. According to Federal Reserve figures reported by the Wall Street Journal, consumer revolving debt, which typically involves credit cards, dropped by almost $100 billion in the first three months of 2010 compared to the same period in 2009. In other promising news, total consumer debt fell by 3.4% during the same period.

Of course, while there are signs of recovery, total consumer debt in the U.S. still totals over $2.45 trillion. And the profile of the average debtor has begun to change. Once concentrated among the young and people with lower incomes, debtors now tend to be older and wealthier. One nonprofit counseling firm told the Wall Street Journal that the average income of its clients jumped 10% in 2009.

Strategies to Eliminate Debt:

• First, try to talk to your creditors directly. Possible steps a creditor might take include cutting your interest rates, eliminating fees, or even cutting the amount you owe. Creditors prefer to recoup some of their losses, rather than none, so they can occasionally show some flexibility. However, not all creditors exhibit such compassion. In addition, if you owe money to multiple creditors, this strategy may not be feasible.
• If talking directly to your credits is not realistic, another debt-reducing tactic is to contact a nonprofit credit counseling firm. Thanks to the newly minted Credit Card Act, credit card companies are now required to provide a toll-free number on every credit card bill for a nonprofit credit counseling service. These firms can help you work with creditors to adjust your payment plans. But be warned: Some such firms have been criticized for allegedly charging high upfront fees, and several are partially funded by the credit card companies themselves.
• If these strategies sound daunting or ultimately futile, many people turn to another option: bankruptcy. The Wall Street Journal recently reported that roughly 580,000 Americans have filed for bankruptcy so far this year. This represents a 16% increase over the number of bankruptcy filers in the first five months of 2009. Further, according to the National Bankruptcy Research Center, the number of personal bankruptcy filings totaled 1.4 million last year. So, if you are considering filing for bankruptcy, you are likely not alone.

To see if bankruptcy is the right option for you, learn more about connecting with a bankruptcy attorney. The more options you explore to eliminate your debt, the better you’ll feel about restoring financial equilibrium.

Additional Resources

Check out the National Bankruptcy Research Center for up-to-date research and statistics on bankruptcy trends in the United States.

The graphic helps depict the reality of some benign-seeming products—and highlights how susceptible many lower-income Americans are to terrible credit products, and how these financial fixes often lead to personal bankruptcy.

Payday Loans

Most people who enter payday lending shops expect the transaction to be a one-time event—which is understandable, because that’s how they’re often advertised. In practice, though, many people find themselves trapped by such loans. Here’s how:

• You take out the initial loan by post-dating a check to be cashed on your next payday. For this service, you pay a “fee,” which can be viewed as an interest rate (usually around 30 percent of the amount borrowed).
• If you have money to pay the loan in full in two weeks, you’re square.
• If you don’t have enough money to pay the amount you borrowed plus the fee, the loan “rolls over” for another two weeks. For this, you pay another fee.
• After a few cycles of falling short, it’s easy to pay more than the amount you borrowed in fees, which translates, as the image points out, into an interest rate well over 100 percent.

Payday lenders tend to affect lower income individuals as they typically have little savings to cover an emergency and few choices in terms of credit.

Rent-to-Own Stores

When you can’t afford to make a major purchase in one fell swoop, your only option may be to rent—or, more specifically to go to a rent-to-own shop and sign a contract with them. But, while this option may seem affordable in the short term, it’s usually a terrible deal in the long term:

• Items in the store have a significant markup. Most people who can make major purchases on their own don’t head into to RTO stores; the assumption is that you’ll be renting something and/or buying it gradually.
• For a set period of time, you make weekly payments and have the option of purchasing the item at its original RTO store price.
• When that period ends, you typically default into a contract that may require you to pay for insurance for the item, continue making payments over a long period of time and generally will end up costing you far more money than buying it new.
• Once you actually own an item, it’s far from new and worth much less than you ended up paying for it.

Additional Resources

Information Disclosure, Cognitive Biases and Payday Borrowing (PDF)

In light of this bankruptcy filing, Japan Airlines will seek to turn its unprofitable operation around with an injection of capital from a turnaround agency, the Enterprise Turnaround Initiative Corp. of Japan.

As a part of the restructuring, Japan Airlines will cut costs by reducing their employees by almost 16,000. This figure represents almost a third of their employees, which total about 47,000. Japan Airlines will also request a debt waiver of around 730 billion yen, or about $8 billion.

Enterprise Turnaround Initiative Corp. is a government-supported investment firm. It will inject 300 billion yen into the airline, or around $3.3 billion.

A number of factors have led Japan Airlines to bankruptcy. From the difficult economic situation and its reluctance to drop routes that were not making money, to the swine flu epidemic that led to a drop in travelers and widespread paranoia about travel, Japan Airlines has been losing money. The company was in negotiations with the airline’s banks and the government preceding the bankruptcy.

The quarterly loss that Japan Airlines posted recently was its worst ever. In mid-2009, the airline posted a quarterly loss of 99 billion yen. This represented the worsening of a money-losing trend that started in early 2009.

Japan Airlines is likely to take advantage of Japan’s Corporate Rehabilitation Act. This act usually requires that a company in trouble replaces its management before a set of court-appointed officials begin to steer it back to financial stability. The wide-reaching scope of the company and its massive scale make it hard to predict how long this bankruptcy procedure and restructuring will take.

According to the Wall Street Journal, Japan’s bankruptcy protection law has undergone several revisions to date, aimed at making it easier to use and bringing it closer into line with Chapter 11.

Bankruptcy proceedings that used to take more than a decade have been shortened to take several years. About half of the bankruptcy protection cases in Japan have recovered in the last five years.

Mesa Air, which operates regional flights on behalf of United Airlines, Delta Airlines and U.S. Airways as well as offering flights in Hawai’i, plans to continue operating in its reorganization. It will, however, cut down on the number of aircraft in its fleet.

According to the company’s CEO, Jonathan Ornstein, Mesa Air has been trying to work its way out of debt or at least substantially reduce it. It did succeed in cutting $160 million in debts. Ornstein went on to say that the company simply ran out of time in its efforts to reduce debt, leading to the bankruptcy filing.

Phoenix-based Mesa and its attorneys were unable to negotiate a deal with its debtors sufficient to avoid the bankruptcy. There were simply too many of them and too many debts coming due making a restructuring out of court impossible, said Mesa bankruptcy attorney Richard Pachulski.

Standard operations, customer programs and employee pay will continue based on the terms of the bankruptcy. The bankruptcy judge in the case, based out of Manhattan, signed off on several requests that will allow Mesa to do so.

In the bankruptcy filing, the airline reported almost a billion dollars in assets and $869 million in liabilities. The most prominent of its creditors include Bombardier Inc., a manufacturer of airplanes and trains, and Embraer, another airplane manufacturer. Mesa owes these two companies over $170 million.

Mesa has experienced a business drop-off in the last few years. In 2007 they flew 13 million passengers, while in 2008 that number decreased to 11.2 million. And while 2008 was a profitable year, 2009 saw almost $25 million in losses.

Mesa will use the bankruptcy as an opportunity to trim the number of aircraft in its fleet. CEO Ornstein cited an overabundant fleet as one cause for the airline’s financial difficulties. Rising oil prices, for example, made previously profitable planes an untenable expense.

According to the LA Times, nearly 19,000 small businesses filed for bankruptcy in California during the 12 months ended Sept. 2009, almost doubling the amount from the previous year.

Small business bankruptcy is up 44% nationwide.

Personal or Business Bankruptcy?

The actual number of small firms and entrepreneurs affected by the recession is likely much greater, as many business owners opt to file personal bankruptcy to resolve their business-related debts.

Small business owners often have to put up personal collateral to back business loans, sometimes making it difficult to know whether a personal or business bankruptcy will be resolve outstanding debts.

Kathleen March, a Los Angeles bankruptcy lawyer, talked to the Times about this unique situation.

The norm is if you’re running a small business, you will have to either cosign or personally guarantee the significant debts. The business itself can shut down, but the people cosigned all the debts. So, the individuals are then saddled with these huge debts.

Stimulus for Small Business

The Obama administration has proposed using federal stimulus money to help create more loans for the small business sector.

Congress is currently considering a White House proposal to eliminate capital gains taxes for one year on new investments in small-business stock, as well as new tax incentives to encourage hiring in small businesses.

So what does a business’s bankruptcy filing mean for you and your purchases? Don’t get too excited—you still have to fork over the balance on your bills.

Payments Still Required

If you currently have a store-specific credit card or are making installment payments on an item, you’re required to pay your debts in full even if the company files for bankruptcy. Here’s why:

• Chapter 11: Reorganization bankruptcies work by allowing companies to repay their creditors over a period of several years. A Chapter 11 business bankruptcy filing is similar to a Chapter 13 filing for individuals. In order for the company to continue paying its debts, it needs money from the customers who still owe.
• Chapter 7: Liquidation bankruptcies require a company to sell off its assets to raise money to pay off as much of its debt as possible. Here, too, you’ll be required to settle your debt so the company can transfer that money to the organizations it still owes.

But, if you’ve signed up for certain types of services from companies in bankruptcy, you may be entitled to get some money back.

Warranty Plans

If you’ve purchased an extended warranty or multiple-year service plan with a company that’s filing for bankruptcy, you may be entitled to a full or partial refund. Here are the possible scenarios:

• Reorganization bankruptcy: If the company is simply restructuring (in Chapter 11 or Chapter 13), it’s likely you won’t qualify for any kind of refund. This type of bankruptcy allows the company to continue functioning, and its goal is for the company to emerge as a financially viable entity after a repayment period.
• Liquidation bankruptcy: If the company is going out of business (in Chapter 7), you may in fact qualify to get some money back. In this case, you are one of the company’s creditors (that is, the company owes you money in the form of the prepaid service plan you won’t be able to use). You can contact a lawyer to help you determine what you deserve.