When you picture who typically files for bankruptcy, you may envision people in their 20′s who spent recklessly or people in middle age who suffered job loss or high medical bills that made their debt soar out of control. Likely the last image in your mind is senior citizens, but surprisingly, they “are the fastest-growing segment of the population seeking bankruptcy protection, according to a recent study from the University of Michigan Law School” (USA Today). If you are a senior considering bankruptcy or your parents are, there are several things you must know.
What You Will Retain in a Bankruptcy Settlement
You may imagine seniors as penniless and homeless after filing for bankruptcy, but that is not the case. The seniors will retain several assets that can help them live comfortably for their remaining retirement years.
Retirement Funds: Seniors who file bankruptcy are allowed to keep up to $1.1 million in their retirement vehicles including their 401(k)s and other retirement funds.
Social Security: Social Security will not be affected, and even before a senior files for bankruptcy, that money cannot be garnished.
Home: In many cases the senior will be allowed to keep their home. Under homestead exemption laws, a senior will be able to retain a certain dollar amount in her home, but this varies by state. For instance, if the senior’s home is worth $400,000, and her state’s homestead exemption law allows $200,000, she will be able to keep $200,00 in equity, but the creditors get the other $200,000. A good state to reside in is Florida, which allows a senior to keep all of the equity in her home, no matter the home’s value.
What Will Be Dismissed in Bankruptcy
Considering that seniors are typically living on a very limited budget, dismissing unsecured debt can protect them from harassing creditors as well as give them a fresh start to live within their means now that they no longer have to pay so much to creditors.
Other Useful Information to Consider
Seniors often wait longer than they should to file bankruptcy and use up a large portion of their retirement trying to pay down debt. Not hiding your debt, as difficult as it may be, is often the first step to regaining economic control. Also, speak with a professional early, as soon as you realize you may not be able to afford to pay back all of your debt.
Also, Social Security cannot be garnished, but some seniors have judgments against them allowing the creditors to access their bank accounts to obtain money, and the creditors cannot distinguish between what is Social Security money and what is not. According to Teisha Powell, a Fort Lauderdale, FL attorney, “Seniors should keep Social Security money in a separate account, and they should notify creditors in writing that the account contains only Social Security money” (Bankrate).
While filing for bankruptcy may seem shameful, for some seniors on a limited income facing high medical expenses, it may be the best way to stretch their retirement for their remaining years. If a senior does find himself in this position, it is important to consider filing before creditors have access to his bank accounts.