May 5, 2011

Bankruptcy During Retirement

Posted in Bankruptcy tagged at 12:04 pm by demetriagraves

Retirement is supposed to mean financial stability for seniors. But increasingly, Americans over the age of 65 are getting into trouble with debt and turning to the bankruptcy courts for relief. In 2007, seniors represented 7 percent of all bankruptcy filers. More than a decade earlier, only 2 percent of those filing for bankruptcy were aged 65 or older.

According to recent reports, seniors are the fastest growing demographic of bankruptcy filers. Bankruptcy poses some special issues for seniors who, unlike other filers, tend to have more equity in their homes and less of a chance of increasing their income so late in life.

High medical bills are the leading cause of bankruptcy filings among seniors and those under age 65. But typically, those type of bills, which are classified as unsecured debt, are discharged in full at the conclusion of a Chapter 7 bankruptcy.

Some other factors to know if you’re a senior considering bankruptcy are that Federal law protects Social Security money from garnishment, whether seniors file for bankruptcy protection or not. But debt-plagued seniors who choose not to file still need to protect their Social Security money, at the time a creditor obtains a judgment, they will just garnish your bank account. This means the creditor will have no way of figuring out that the Social Security income has been deposited in the bank account and exempted. Therefore, it’s a good idea for seniors to keep Social Security money in a separate account, and they should notify creditors in writing that the account contains only Social Security money. In addition, there’s a new rule effective in May 2011 that is designed to help prevent financial institutions from just handing over account money to creditors.

Like Social Security, most retirement vehicles such as 401Ks and pensions are exempted under federal bankruptcy law. That means creditors can’t touch those assets in a bankruptcy. Seniors with particularly hefty pensions however, may not be eligible for Chapter 7 liquidation, so this is why it’s important to seek advice from an attorney. Put another way, some seniors may have too much income to qualify for Chapter 7, but not enough cash flow to pay off their debt and take care of living expenses.

Seniors who have IRAs are treated a little differently in bankruptcy. Federal law exempts IRAs up to $1,095,000. But seniors filing in states with a higher exemption can use their state’s statute to increase their exemption. Thankfully, most state exemptions are large enough to cover most, if not all of a person’s specific retirement accounts.

No matter what your age declaring bankruptcy is not something that you’d want to attempt on your own and it’s important to get all your question answered. I offer a free 30 minute telephone bankruptcy consultation where we can discuss your debt situation and you can get your questions answered. So what are you waiting for?

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