Is it a mistake for a retiree to consider bankruptcy, and can it hurt your retirement accounts and assets at a time when you’re no longer and bringing in income?
Seniors and retirees need to carefully weigh their options if they’re considering bankruptcy. Like everyone regardless of age, they do have the option of either Chapter 7 or Chapter 13 filings, but unlike younger people who choose bankruptcy as a relief for high debts, the process can become more complicated for seniors, and concerns about how their homes, assets and credit ratings to consider.
Let’s take a closer look at what you need to know about filing bankruptcy in retirement.
Is Bankruptcy a Good Option for Seniors With Debt?
The general perception is that when people reach retirement age, they’ve been able to accumulate the savings they need to live comfortably in their retirement years. But that’s not always the case. For some seniors, advance age can also bring on increased health concerns — and with it, rising medical bills. Those medical issues can sometimes translate into high credit card bills as well. No longer in the workforce, seniors can often find themselves strapped for cash and looking for relief.
Is bankruptcy the solution?
Two available options are Chapter 7 and Chapter 13. Chapter 7 allows seniors to discharge most or all of their debts, but their nonexempt assets get turned over to a bankruptcy trustee who sells it to pay their creditors. Chapter 7 is primarily available to those whose income is below the median income in their state, although Social Security income doesn’t count.
By filing Chapter 13, you can keep your assets and property, then set up a repayment plan for your debts. The plan typically lasts from three to five years. This process is available to those who are not eligible for Chapter 7 or who want to keep more of their assets than Chapter 7 would allow.
Protecting Your Home in Bankruptcy
A major concern for seniors contemplating Chapter 7 is that the bankruptcy trustee could sell their home to pay creditors. For seniors who have paid off their mortgage or have equity in their home, they’re at risk of losing it. Some states protect the value of a home through the Chapter 7 Homestead Exemption, but not all. A senior can keep their home in Chapter 13 bankruptcy, as long as they continue paying their mortgage.
Protecting Retirement Accounts in Bankruptcy
Most retirement accounts are protected in bankruptcy by federal law. That includes:
- Profit-sharing and money purchase plans
- Defined-benefit plans.
These are safe during Chapter 7 bankruptcy, and you can also keep your assets in Chapter 13.
Seniors also usually claim an exemption for specific types of income. That includes:
- Life insurance payments
- Veteran’s benefits
- Disability benefits
Protecting Social Security Income in Bankruptcy
Income from Social Security or Social Security Disability is protected in Chapter 7, and it does not count in the Chapter 7 means test. So a retiree should qualify for Chapter 7 bankruptcy even if most or all of their income comes from Social Security.
However, in Chapter 13, your Social Security income is factored into the amount you pay each month in your repayment plan. So the bottom line is that if you’re a senior with little to no income
outside of Social Security and very few assets, your income and property should be protected because creditors can’t touch your SS income. So if creditors can’t go after your income or property, bankruptcy might not be the best move for you. Filing bankruptcy in retirement makes more sense if you’ve accumulated a lot of debt but don’t have enough income to keep up with your monthly payments.
How Will Bankruptcy Impact a Senior’s Assets?
A bigger consideration for seniors considering bankruptcy is how it affects their assets, particularly if they’re accumulated important things that they hope to pass down to their children or grandchildren. Some seniors may have too many assets to benefit from bankruptcy.
Another concern is how a bankruptcy filing impacts their credit. Chapter 7 stays on your credit report for up to a decade, and it will take time to repair their credit score, limiting the borrowing potential for many seniors.
Trust an Experienced Bankruptcy Attorney in Louisiana
When you’re considering this process, a good bankruptcy attorney can help you understand which approach to bankruptcy is going to work best for your situation.
Orum Young Law has more than 35 years helping the people of Northeastern Louisiana file for bankruptcy and regain control of their finances. In those 35 years, we have filed more than 20,000 cases and experienced unbelievable success. We help our clients understand the basic aspects of their case, including how to determine their expenses and handle any necessary filings.
Contact us today at (318) 450-3192 to schedule your free case review and start protecting your family’s future.