Planning for retirement amid economic difficulties can be a profoundly stressful experience. Compounding that situation are increased medical expenses, the need for a caregiver, fixed or reduced income, and only so much time with which to work. Seniors, more than ever, are considering bankruptcy as a means to get out from under an overwhelming load of medical debt and no way to pay it off.
Financial Realities Faced By Senior Citizens
Unlike younger populations, seniors are less likely to increase their earnings and more likely to have built up equity in their home, both of which are major factors in the bankruptcy decision making process. If you are eligible for Chapter 7 bankruptcy, all of your current unsecured debt can be erased while retaining ownership or your home and car.
If you have too many assets, however, you may not qualify. In that case, Chapter 13 bankruptcy may be in your best interest. Chapter 13 bankruptcy consolidates all of your debts into a lump sum that is frequently negotiated to a smaller amount, and then regular payments must still be made over the next 3-5 years.
Before filing for Chapter 13 bankruptcy, however, one must consider future medical expenses and living on a fixed income in times of ever increasing costs and cuts in social services.
Do You Own Your Home?
If you own your home, the equity built up may be protected under your state’s bankruptcy laws. Some states, such as Florida, have no limit to this homestead exemption, whereas other states have lower exemption thresholds, which can make Chapter 7 bankruptcy unavailable. Other financial options available to home owners are second mortgages and reverse mortgages.
A second mortgage or consolidation loan is a low-interest secured loan that uses your home as collateral. Reverse mortgages act much like a line of credit on the equity of the home. The details of each of these options vary greatly by state, so this is something you must discuss with your attorney.
Protecting Retirement Benefits
Most 401(k)s and pension benefits are protected by law in bankruptcy cases. However, if you have substantial funds available to you, you will not qualify for Chapter 7 bankruptcy. Unfortunately, many seniors find themselves stuck between a rock and a hard place, having too much money for a Chapter 7 bankruptcy, but not enough income to make payments required by Chapter 13 bankruptcy.
Most IRAs are exempt up to $1,095,000, but some states have higher exemption levels and some have caps as low as $100,000, so it is important to discuss the details with your bankruptcy attorney. Also, if your benefits are the product of having been self-employed, your pension may be more vulnerable to creditors. Be sure to ask your bankruptcy attorney if this applies to your retirement savings before filing for bankruptcy.
Also, since retirement benefits generally have beneficiaries, they usually cannot be liquidated, even with a judgment, unless the beneficiary dies while the case is still open. Things can get very complicated at that point.
Protecting Social Security Benefits
Social security benefits are also exempt from garnishment, according to Federal law. However, if a creditor obtains a judgment, allowing them to garnish a bank account, Social Security benefits can get lost in the shuffle unless they are held in a separate account. You can further protect Social Security benefits by notifying creditors in writing that an account contains only Social Security benefits and is, therefore, protected by law.
Effects On Assisted Living Options
Nursing homes and assisted living facilities that accept Medicaid are forbidden by law to reject a resident or applicant due to bankruptcy. This does not hold true for private facilities. In both cases, the applicant’s financial ability to pay is a factor taken into consideration. If you are facing bankruptcy, you are likely to be denied due both to financial inability and a record of bankruptcy.
What About Medical Bills?
Medical bills are the number one cause of personal bankruptcy in the United States. If your attorney files a Chapter 7 bankruptcy on your behalf, all of your unsecured medical bills are eliminated. Under Chapter 13 bankruptcy, your medical bills may be reduced and consolidated, but they are still due and payable.
If you are on limited income, Chapter 13 bankruptcy may not be in your best interest, especially if you are facing a high debt load. In some rare cases, a doctor may obtain a judgment against you, making the debt a secured debt, which can give the doctor a lien against your property. Your bankruptcy attorney will investigate your debts for issues such as these, to help you make the best decision for your financial situation.
Bankruptcy For A Better Tomorrow
President Obama has promised improved benefits for seniors facing bankruptcy. Currently, however, bankruptcy is a helpful alternative to financial difficulties being faced by seniors.
Even if all of your income is exempt from garnishment and your pension is protected, harassing phone calls and letters from creditors can take their toll. Once your bankruptcy lawyer files paperwork on your behalf, the letters and phone calls will cease.
Talk with a bankruptcy attorney today to learn if you qualify for a Chapter 7 bankruptcy or a Chapter 13 bankruptcy. The law firm can also provide access to other tools, resources, and information that can help your golden years be more comfortable and financial secure. Most law firms offer free consultations that can help you decide which solution is best for you.
Todd Morse writes for Morse & Associates, LLC, where is a lead attorney. The firm assists clients with the Chaper 7 and Chapter 13 bankruptcy process. They also have a number of resource articles available on their site to help the public learn more. Find Todd on Google+ or Morse & Associates, LLC on Google+.