Berge & Berge, LLP Blog

Saturday, February 11, 2017

Filing for Bankruptcy as a Senior: When Does It Make Sense

Is a Chapter 7 or Chapter 11 Bankruptcy a Good Solution for Debt-Burdened Retirees?

For elderly people who have spend their lives paying their bills, filing for bankruptcy in their golden years may seem inconceivable, even abhorrent. In many cases, it may not be the right strategy. But there are circumstances when a bankruptcy filing has advantages. For someCalifornia seniors swamped by debt, bankruptcy is a topic that should not be taboo.

New Challenges Leading to Heavy Debt for the Elderly

A number of factors may have led to more financial problems for today's seniors than ever before.

  • • Longer life expectancies, which may exhaust what had once seemed like adequate retirement savings
  • • Higher than expected medical bills and other expenses involved in eldercare
  • • Increasing costs of living for elderly retirees living on fixed incomes

At a time when interest rates have been at historic lows, elderly people living on pensions and investments may lack the income to meet emergency medical bills, supplemental insurance costs, and day-to-day living expenses.

Risks and Advantages for the Elderly May Depend on the Type of Bankruptcy

In some cases, bankruptcy may put a senior's home and valuable assets in jeopardy. But there are situations in which seniors can benefit without losing their homes or their retirement savings. Lower income seniors may be able to file for Chapter 7 bankruptcy. This, in combination with one of California's two types of bankruptcy exemptions - "System 1" and "System 2" — can safeguard some property. You may be able to protect part or all following, subject to limits in state and federal law.

  • • IRA, 401(k) or pension plans
  • • Equity in a home. In California, the elderly receive a larger "Homestead exemption" than younger debtors when filing for bankruptcy
  • • Motor vehicles
  • • Jewelry, art and heirlooms
  • • Health aids
  • • Food, clothing and furniture
  • • Wages
  • • Insurance payments

Your legal adviser can advise you on whether you are eligible for Chapter 7, how the maximums for each category of asset would affect you, and whether Chapter 7 would be make sense.

Creating a Payment Plan Under Chapter 13

Those with incomes too high to qualify for a Chapter 7 bankruptcy or who would prefer to avoid its consequences can seek a payment plan under Chapter 13. This approach allows seniors to repay debt over time based on what they can manage. Both strategies wipe out most debts, including credit card debt and medical bills. Certain types of debts are not dischargeable, such as child support, alimony and some back taxes.

Not having to live under a mountain of debt can be a relief to seniors. At the same time, bankruptcy is not a step to be taken lightly. Your decision depends on your living situation, your level of debt, and the assets that might be at risk. An experienced attorney who understands the needs and circumstances of elderly clients can advise you on whether bankruptcy is an appropriate strategy for you.

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