More and more, retirees are facing bankruptcy.
People over the age of 55 account for 22 percent of all bankruptcy filings. Back in 1991, that figure was just 2 percent.
Los Angeles Bankruptcy Attorney Vincent Howard of HOWARD LAW is experienced in handling Chapter 7 cases for seniors.
While retirees have not been immune to the ill effects of the housing crisis and poor economy, the primary reason many seniors are falling into debt has to do with the rising costs of medical care. As we reported this summer in our Los Angeles Bankruptcy blog, 70 percent of older adults who live in poverty have suffered a serious medical condition. Among those are heart problems, cancer, lung disease or stroke. Compare that to seniors living above the poverty line, where the rate stood at 50 percent.
Because the reasons for their debt vary from those in younger generations and because there is lesser chance of increasing income later in life, there are a unique set of challenges that exist in determining whether an over-65 filer should opt for a Chapter 7 liquidation or a Chapter 13 repayment plant.
First, you should know that your Social Security income is protected under federal law from garnishment in a bankruptcy. However, when creditors receive a judgment, they may have no way of determining which money is derived from Social Security and which is other income or resources. The best way you can protect yourself is to have your Social Security payments routed to a separate account. Your bankruptcy attorney can then notify your creditors in writing that this account contains only Social Security income.
Secondly, your pensions and 401(k) retirement plans are also exempted from liquidation in a bankruptcy. However, you need to be aware of how these assets may affect your filing. If you have a large pension, for example, you may be ineligible for Chapter 7, and may instead need to explore a repayment plan under a Chapter 13 filing. This can be tough because retirees often don't have disposable income that is required in order to pay back all their debt, even when given a restructured plan. Your bankruptcy lawyer can advise you of the best option, given your circumstances.
You must also consider whether you plan to live in a retirement or nursing home at some point down the road. Some nursing homes do take a close look at financial statements. Anti-discrimination laws are such that facilities that accept Medicaid can't reject you. However, private nursing homes may not. This is a consideration that should be carefully weighed but here's the thing: If you are contemplating a bankruptcy, it's likely because you have a lot of debt. If a retirement home would turn you down because of a bankruptcy, they'd likely turn you down because of the debt anyway. If you're deep in debt, bankruptcy is usually the better option. Then, on down the road, a family member may be asked to sign a financial guarantee (which is a lot like being a loan co-signer), assuring that payments will be made.
Finally, because high medical bills are the primary reason a person over 65 files for bankruptcy, it's good to know that those bills will be wiped out in a Chapter 7 filing. Chapter 13 filers may have to pay a portion of it back, but usually a lesser amount and on a plan that is more manageable.
Los Angeles Bankruptcy Attorney Vincent Howard at HOWARD LAW can help. You can reach us toll-free at 1-800-872-5925 or send us a message online.
Over 65 and facing bankruptcy, Oct. 25, 2010, By Jennie L. Phipps, Bankrate.com
More Blog Entries:
Retirees Increasingly Living in Poverty; Bankruptcy Can Help, July 25, 2012, Los Angeles Bankruptcy Lawyer Blog