File Bankruptcy as a Retiree?

When you reach retirement age, you should have enough money to maintain a comfortable lifestyle. Many seniors are debt-ridden, mainly because of the accumulation of medical expenses and credit card bills. Seniors reaching retirement age are filing for bankruptcy, and there are some potential negatives.

Understanding Bankruptcy types

There are two ways to file for bankruptcy, Chapter 13 and Chapter 7. If you file for a Chapter 7 bankruptcy, you will be able to do away with any unsecured debt, but if you have nonexempt assets, you’ll have to hand them over to the court. Those will then be sold off to pay off your creditors. If you file for a Chapter 13 bankruptcy, you will be able to retain all of your properties, but it’ll be made mandatory for you to pay off a part of your debt within five years.

How do you qualify for Bankruptcy?

A means test is mandatory before filing for Chapter 7 bankruptcy. They don’t count your social security benefits as income. Qualifying for Chapter bankruptcy gets more manageable if you have income from a pension or retirement savings account. If you have a considerable amount of income, you can’t qualify for Chapter 7 bankruptcy and have to go for chapter 13 instead.

Your assets and how exemptions apply to them

If you feel the need to declare bankruptcy on your retirement, you should be mindful of how your assets will be affected by it. There are laws in every state that specify what can and cannot be exempt from a bankruptcy case. You might have the ability to substitute federal exemption guidelines. Things that are exempted generally include your property, the pieces of equipment related to your work, any vehicle you might own, and your home equity. You’ll find that there’s a definite amount associated with every exemption.

For homeowners, a few considerations

If you’re a homeowner, you must know about the homestead exemption rules for your state. You’ll find that while any amount of equity can be exempt in some states, let you exclude a comparatively small amount in some states. Federal laws mandate that $22,975 can be exempted under the homestead exemption at the very most. If you have high home equity but the state you reside in has a low exemption limit, you might have to sell off your property to discharge your bankruptcy case.

Will your Retirement assets be affected by Bankruptcy?

One of the main positives of filing bankruptcy when you’re retired is that, in most cases, they won’t touch your retirement accounts after the case is completed. Federal laws entirely exempt your 401(k) plans. Your 403(b) account, profit-sharing plans, and pensions are also exempted by federal law. Suppose you’ve got money stored in a traditional IRA account or a Roth IRA account. In 2014, the highest exemption amount for these accounts was set at $1,245,475.

However, the exemption amount varies from state to state. In most cases, retirees can claim an exemption for certain kinds of income, including payments for life insurance, illness benefits, public assistance, disability, veterans benefits, and alimony.

Should you do it?

Wondering if you should go for bankruptcy as a retiree? You should know that doing so is only advisable if you’ve accumulated a considerable amount of unsecured debt and your disposable income isn’t enough to make your monthly payments. Not only should you keep in mind what assets you might lose, but you should also consider how your credit score might be affected by bankruptcy. If you go for a Chapter 7 bankruptcy, then that will stay on your credit history for ten years, at the very most. You should also know that it might take a considerable amount of time for your credit score to recover after bankruptcy. However, if a fresh start is all you want as a retiree, bankruptcy may seem like a good deal.

Ideally, you should be speaking to a bankruptcy lawyer about your specific situation before you file for bankruptcy. Nevertheless, as a senior, certain considerations will help you decide whether bankruptcy is right for you or not. They are as follows:

• You have accumulated a lot of dischargeable debts.
• You’re behind on your mortgage or automobile loan payments.
• Almost all of your property can be exempted.
• You have a meager income and qualify for Chapter 7 bankruptcy.
• Your unsecured debts are mostly credit card debt and medical bills.

As a senior, you should remember that your retirement funds won’t remain exempted if you withdraw them. You should seek the opinion of your bankruptcy lawyer before you withdraw any money from your retirement account.

The Bankruptcy process

For people of all ages, the bankruptcy process is the same. The first step would be credit counseling. After that, you’ll have to prepare the paperwork and submit them to the court. Then you’ll have to participate in meetings with creditors and finish your financial management course. Your debts will be written off if everything goes alright.

When Bankruptcy isn’t the right choice

There are certain reasons why bankruptcy may not be worth it as a senior. You should know that your creditors can’t take away your retirement funds, social security money, home, and household items. They can’t even take away your car if it is inexpensive. These are regarded as “judgment proof,” Thus, it doesn’t make sense to file for bankruptcy in this case. However, if you have too much property that is not exempt, filing for a Chapter 7 or Chapter 13 bankruptcy could be a mistake. In this case, if you file for a Chapter 7 bankruptcy, then you stand a chance to lose the property. If you file for Chapter 13, you’ll be put on a high prepayment plan.

You can either choose to go or debt consolidation. You take out a loan in debt consolidation and pay off all your unconsolidated debts, and you have to pay off the new loan within five years.

In the case of debt settlement, part of what you owe is written off by your creditor after negotiations, and you have to pay off the rest of the amount either in one go or in monthly installments.

Conclusion‍

It is advisable that if you’re considering bankruptcy as an option as a senior, you consult with an experienced bankruptcy lawyer first who’ll be able to advise you properly.

AUTHOR BIO:

Lyle Solomon has extensive legal experience as well as in-depth knowledge and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific's McGeorge School of Law in Sacramento, California, in 1998, and currently works for the Oak View Law Group in California as a principal attorney.

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