In our last post, we discussed how a recent survey on consumer finances by the Federal Reserve indicated that Americans over the age of 75 are experiencing a drop in net worth as well as income. Ultimately, this could lead to more elderly Americans having financial problems.
At the end of the discussion, we stated that there are times when bankruptcy might be the best solution for senior citizens who are struggling with debt. However, it is a decision that should be made with the guidance of an experienced bankruptcy lawyer.
Among many other concerns, here are a few points about senior citizens and bankruptcy that a lawyer will likely discuss:
When calculating the bankruptcy means test, Social Security benefits are not considered. There is an income limit that can bar some people from qualifying for Chapter 7 bankruptcy. However, Social Security benefits are not counted as income, which is a big advantage for seniors.
Most retirement savings are exempt from bankruptcy liquidation, which is good for seniors. For many seniors, their retirement accounts are their biggest source of income. Since almost all tax exempt retirement accounts such 401(k)s are completely exempt in bankruptcy, they don’t need to worry about these funds being liquidated or losing any income.
It’s possible for seniors to protect a certain amount of home equity from bankruptcy liquidation. Many seniors have also acquired substantial equity in their homes, which they may worry about losing after filing bankruptcy. However, the bankruptcy laws provide a homestead exemption allowing filers to protect a certain amount of equity.
Bankruptcy can be a good option for seniors struggling with medical debt. Medical bills are one of the quickest ways seniors can get in over their heads with debt. Luckily, bankruptcy can easily wipe out most medical debt in just a few months.
Bankruptcy might not be a good idea for seniors with lots of nonexempt property. On the other hand, bankruptcy might not be a good idea for seniors who could stand to lose a lot of assets during the bankruptcy liquidation such as real property, expensive collectibles or belongings, a second home or bank accounts.
