Bankruptcy and Seniors

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Bankruptcy and Seniors

Mature couple in financial trouble is filling out a loan application.

Bankruptcy can be a way to get yourself out of financial difficulties if circumstances have made it impossible for you to pay your debts.  We usually think of people filing for bankruptcy in their 30’s or 40’s, maybe after a divorce or job loss. Increasingly, however, later in life, people have been finding themselves in need of a fresh financial start.

Why Seniors File

With pensions going away, fewer people have that extra income when they reach their golden years.  Add to that the skyrocketing costs of healthcare and decreasing insurance coverage, many seniors find themselves in over their heads at a time when they should be enjoying retirement.

High medical bills are the main reason for bankruptcy filings among senior citizens.  The good news is that these bills are quickly discharged in a Chapter 7 bankruptcy. The bad news is that only the medical bills that you have at the time of the filing are discharged and typically with seniors, high medical bills are a result of an ongoing medical issue.

Can You File?

          If you’re like many seniors, you rely on the equity in your home in retirement. In Chapter 7, a trustee may liquidate your assets to pay your creditors. Fortunately, your home will most likely be exempt from this, but there are exceptions.  Usually, seniors have paid their mortgage and own their home outright, which could put them at risk of losing it because it is an asset worth a lot of money, but the state of Florida is generous with their exemptions so if you’ve been in your home for more than a few years, you should be able to keep it.   It’s important to work with a law firm that specializes in bankruptcies and are experts of the bankruptcy laws in your state. Your bankruptcy attorney can determine your exemptions before you commit to filing for bankruptcy.

If you have retirement accounts such as 401K’s, 403B’s, profit sharing, and other legitimate retirement accounts, they are exempt in bankruptcy.  IRA’s and Roth IRA’s are exempt up to a specific limit. Your bankruptcy lawyer can give you the most current limit (it changes every few years) and tell you if you have any accounts that would not be exempt.

To file for bankruptcy, most people must pass the Bankruptcy Means Test that tells you which, if any, types of bankruptcy you would qualify for by comparing your monthly income to the average in your state.  If you collect Social Security benefits, they will not be included in your monthly income for the means test. However, it must be included in your bankruptcy paperwork, which, if your disposable income in your budget is too high, you still may be disqualified from filing for Chapter 7, but you could still file for Chapter 13 Bankruptcy.  In Chapter 13, you keep all of your assets, but work out a payment plan with your creditors which usually lasts around 3 years.


Should You File?

While each case is different, there are several things to consider when making the decision to file for bankruptcy or not.

            Bankruptcy does hurt your credit, but unless you’re planning on making major purchases in the next few years, it may not matter if your credit is bad.

            Do you have children?  One of the reasons many seniors file for bankruptcy is because they are worried that their children will be left to pay their debt.  While in most cases credit card companies, auto loan companies, etc. can’t simply go after your children to repay the debt if they aren’t a cosigner on the loans, the executor of the estate may pay the debt which means there’s less in the estate for the children.

If you are a senior who has few assets, you may be considered “judgment proof”.  This simply means that you have no assets that your creditors can take if a judgment were to be awarded to them against you and it may not be necessary to file for bankruptcy protection.  Even if your creditors get judgments against you, they are not allowed to take your Social Security and can take no more than 25% of any other income.

            On the other hand, if you do have a home and don’t file for bankruptcy but you stop paying your bills, your creditors may be able to put a lien on your home until the debt is paid.  If this happens, you could be hit with high interest on the unpaid liens and the creditor can actually file for foreclosure on your home and get money in its sale.

If you’re a senior and you’re worried about how you’re going to pay your bills, call Miller, Hollander & Jeda today at (239)775-2000.  With nearly 40 years experience practicing bankruptcy law, our lawyers can help you determine the best solution for your unique financial situation.  It’s time to sit back and enjoy those retirement years without all the financial worry.