Taking Steps to Combat Elder Bankruptcy

The number of elderly individuals in the United States who have proceeded through the bankruptcy process has increased substantially over the last few years. Statistics reveal that in 1991, elderly individuals comprised 2% of individuals who filed for bankruptcy. This group, however, now comprises approximately 12% of people who pursue bankruptcy. This increase will result in approximately 133,000 elderly individuals pursuing bankruptcy as an option this year. 

The following will take a brief look at some concerns and key information that senior citizens should know about filing for bankruptcy. 

The Reasons Behind Elder Bankruptcy

There are several reasons why an increased number of elderly individuals have decided to pursue bankruptcy as an option. 

For one, economic factors have made conditions more difficult for elderly individuals. Some of these factors include weakened trade union relationships, stagnation in wages, and the erosion of pension plans. 

Another factor that has contributed to the rising number of elderly bankruptcies is the increasing cost of medical care. Another reason for the increasing number of elderly individuals who need to declare bankruptcy is the increasing number of predators who prey on older people in an effort to collect money. 

The Federal Reserve’s Survey of Consumer Finances reports that approximately 60% of senior households and 29% of senior households owe money on mortgages. While trends demonstrate that an increasing number of senior citizens are filing for bankruptcy, it is important to make certain that filing for bankruptcy makes sense given a person’s unique situation.

Changing Times Have Led to an Increase in Senior Bankruptcies

Changing times in the United States have led to a retirement system that results in much more difficult situations for people. For example, many older individuals are facing superannuation and are no longer able to either find comparable work or contribute to their 401(k)s. 

It is more important than ever for elder individuals to pursue options to keep debt in control, including bankruptcy.

Common Myths About the Bankruptcy Process

Many senior citizens hesitate to pursue bankruptcy as an option because they do not fully understand the process or its impact. 

Some of the most common myths about senior citizens and the bankruptcy process include:

• Senior citizens might lose their home after filing for bankruptcy. For many senior citizens, bankruptcy has the potential to gain control of a financial situation. Some seniors, however, hesitate filing for bankruptcy out of fear that they will lose their home. This is a myth. Instead, many senior citizens are able to retain ownership of their house. 

• Senior citizens might lose their vehicle. This is another popular myth about the bankruptcy process. In reality, there are certain bankruptcy exemptions that allow a person to retain ownership of a vehicle as well as other household items during bankruptcy. 

• Bankruptcy will ruin your credit score and prevent you from ever being able to make purchases in the future. The bankruptcy will temporarily impact a person’s credit rating. Many people, however, bounce back from this momentary decline in their credit rating and are later able to make purchases. A senior citizen who is not interested in borrowing money any time soon should not be too concerned about having their credit rating permanently affected by filing for bankruptcy. 

Deciding Between Chapter 7 and 13 Bankruptcy

For many senior citizens who decide to pursue bankruptcy, the choice is often between Chapter 7 and Chapter 13 bankruptcy. 

In Chapter 7 bankruptcy, a person is able to discharge all or some of their debts and turn over nonexempt assets to a bankruptcy trustee who will sell these profits and give the amount to creditors. Chapter 7 is an appropriate option if a person’s income is below the median income level. Chapter 7 is also an option if an individual passes a means test indicating that they do not have adequate income to qualify for Chapter 13 bankruptcy. 

Slightly different from Chapter 7 bankruptcy, a person who files for Chapter 13 bankruptcy is allowed to keep their assets and repay debts according to the terms of a repayment plan. If a person does not qualify for Chapter 7 bankruptcy, Chapter 13 is an available option. Chapter 13 tends to take a much longer period of time to conclude than Chapter 7 bankruptcy.

How Common Assets are Treated during Bankruptcy

Many senior citizens discover that they are able to retain ownership of some valuable assets during the bankruptcy process. Consider how the following assets are treated:

• Medical bills. A number of senior citizens in the United States are faced with a staggering number of medical bills. Fortunately, these debts are often capable of being discharged in the bankruptcy process. If a senior citizen decides to file for bankruptcy, it is important to wait until all substantial medical procedures have been performed. This is because bankruptcy can only eliminate existing debts.

• Home equity. Many senior citizens have a substantial amount of equity in their home. As a result, it is often critical that a person be allowed to retain ownership of their home while navigating the bankruptcy process. 

• Retirement account. Retirement accounts are particularly helpful to senior citizens. Legitimate retirement accounts including 401(k)s, 403(b)s, state or district pensions, and IRAs are generally protected from the bankruptcy process. A senior citizen should not hesitate to file bankruptcy for fear that they will lose assets located in their retirement account. 

• Social security. Each person must submit their financial records to determine if they are eligible for the bankruptcy process. Chapter 7 bankruptcy is determined based on a person’s income, which includes social security.

Deciding to File Before or After Retirement

The bankruptcy process can change greatly based on whether a senior citizens files for bankruptcy before or after retirement. If a senior citizen has not yet retired, money in retirement accounts cannot be touched by creditors if a person files for Chapter 7 bankruptcy. If a senior citizen has already retired and is receiving income from a retirement account, this money is more accessible to creditors. 

The bankruptcy process after retirement will depend on how much income a person needs to meet living expenses. For people who file for Chapter 7 bankruptcy, anything greater than what a person needs to support themselves will be subject to creditor collections. For individuals who file for Chapter 13 bankruptcy, the income from a retirement plan will likely be included in determining how much debt a person can repay. 

Overcoming the Social Stigma Associated With Bankruptcy

Senior citizens sometimes refuse to consider bankruptcy because they are concerned about how it will impact their sense of duty or reputation with the surrounding community. In reality, many people discover that their public image is not tarnished at all as a result of pursuing bankruptcy. This is because bankruptcy is generally not announced to the public even if the matter is part of the public record. The social stigma associated with filing for bankruptcy is generally not as bad as many seniors would believe. Some people gain comfort in knowing that a number of successful people navigated the bankruptcy process. 

Reasons Why a Senior Citizen Might Benefit From Bankruptcy

Bankruptcy can be advantageous for senior citizens who are facing a number of situations. One advantage is that bankruptcy can be used to stop creditors from acting in a predatory manner. 

Some of the other situations in which a senior might benefit from bankruptcy include the following:

• Discharging credit card bills and medical debt. Chapter 7 can wipe out these types of debts in a short period of time. 
• Catching up on missed payments on property that a person would like to keep. Bankruptcy, however, does not discharge mortgages or other liens on a property.
• Stopping creditor actions including debt collection efforts and wage garnishment.
• Lowering the monthly payments on some types of debts
• Preventing the termination of utility services
• Challenging actions by creditors who committed fraudulent acts
• Protecting cosigners on debts

Bankruptcy is Not for All Senior Citizens

There are a number of reasons why senior citizens should be cautious about filing for bankruptcy. 

Some of the reasons why it might not be necessary to file for bankruptcy include:

• Concerns about losing monthly retirement income are likely not a sufficient reason to file for bankruptcy. 
• Senior citizens might want to avoid filing for Chapter 7 bankruptcy if they own a home that has equity greater than the homestead exemption. 
• There are some types of debts including student loans and most taxes, which are not capable of being discharged through the bankruptcy process

Speak with an Experienced Bankruptcy Attorney

Bankruptcy is a challenging and frightening process, no matter how old you are. For seniors, however, the prospect of filing for bankruptcy can often be particularly frightening. 

If you need the assistance of an experienced bankruptcy attorney, do not hesitate to contact attorney Melanie Tavare today to schedule a free initial consultation.