For many people, debt is a lifelong problem. A lifetime of emergency medical bills, car loans, student loans and a quick swipe of a credit card every so often can add up to a mountain of unpaid bills and loans over time. Debt is a major issue for many of today’s senior citizens, who can expect to have longer life expectancies than ever before. Living to one hundred years of age is no longer considered to be an oddity. Many people find that expectations for them to retire at age 65, which may have been a reasonable age for their grandparents to cease work, can lead to decades of retirement with no added salary.
Even without a large amount of debt before retirement, funds can dwindle quickly without a supplementary income. Also, the recent recession hit a lot of senior citizens’ bank accounts very hard and many have found themselves relying on credit cards, using them to pay for emergency medical procedures or even the everyday cost of living. Though credit cards can be handy in the short term, for many senior citizens those bills add up rapidly and with interest. causing them to quickly fall into a cycle of never-ending debt. This can lead to harassment from creditors and the stress of never knowing if they will be able to fully pay their bills. Instead of leaving their children and grandchildren an inheritance, debt-laden senior citizens may instead pass on a mountain of bills.
What Can Seniors Do About Debt?
According to The New York Times, the best course of action for a debt-laden senior citizen is to file for bankruptcy. Most consumers file under either Chapter 7 or Chapter 13 bankruptcy. The right type of bankruptcy for you depends on your assets and income. Under a Chapter 7 bankruptcy, you’ll separate your assets into exempt and non-exempt groups. The non-exempt assets will be sold to pay creditors. However, in most cases we file ALL assets are fully covered by California’s bankruptcy exemptions. That means most filers keep all of their assets. At the end of the Chapter 7 process, your unsecured debt is discharged. Only people with low-enough incomes can qualify for Chapter 7. Everyone else must file under Chapter 13. Under Chapter 13, you create a 3-5 year payment plan based on what you can afford. At the end of that plan, any remaining debt is discharged. Both types of bankruptcy come with the protection of the automatic stay, which stops creditors from trying to collect money from you outside the bankruptcy process.
Bankruptcy discharge can wipe out most of your unsecured debts, including credit card and medical bills. However, certain debts are not dischargeable. These include student loans and taxes acquired in the 3 years before filing. Child support and alimony debts are also not dischargeable.
Seniors and Chapter 7
If you qualify for Chapter 7 bankruptcy, your main concern is probably protecting your retirement savings and important assets. The good news is that almost all retirement savings are protected from your creditors, even in bankruptcy. Under federal law, pensions, certain profit-sharing plans, and 401(k)s are safe from being taken by creditors. Social security benefits and retirement accounts with a value of up to $1.245 million are also safe.
Many people filing for bankruptcy are concerned that they will be left without a home. However, California’s homestead exemption ensures that this is not the case. You can choose between 2 sets of exemptions in California; the right one for you depends on what property you own. People filing for Chapter 7 bankruptcy can exempt their place of residence from creditors under either system. The exemption covers your equity in the home. As long as your equity is less than the amount of the exemption, creditors can’t touch your home. For example, if you purchased a home for $200,000 and still owe $140,000, you have $60,000 of equity in the home. For a single, non-disabled person under the age of 65, California’s System 1 bankruptcy exemptions protect property worth up to $75,000. Those over 65 can protect up to $175,000. California’s System 2 bankruptcy exemptions protect up to $25,575 of equity in your home.
Note that the exemption covers your place of residence, which can include a living space such as a boat, an apartment, a condo, a stock cooperative, or a home.
For those seniors who qualify to file under Chapter 7, bankruptcy provides a way to get out from under your debt while protecting your most important assets. It’s also a good option for those who don’t have any assets to worry about. In either case, your debts are forgiven and you pay little or nothing to your creditors.
Seniors and Chapter 13
Those who don’t qualify under Chapter 7 may choose to file under Chapter 13. Under Chapter 13, you’ll work out a repayment plan based on your income. A Chapter 13 plan does not require you to surrender any assets, so you may choose Chapter 13 in order to protect assets that wouldn’t be covered in Chapter 7. After the payment plan is over, your remaining unsecured debts are discharged.
So, no matter what chapter you file under, you can get rid of your debts and likely keep most of your assets.
What’s Wrong With Bankruptcy?
Many senior citizens put off filing for bankruptcy because of the stigma attached. They might wait several years, accruing further credit card debt because they are nervous to take swift action or because they feel as though they are alone in their debt. However, many senior citizens find themselves in debt. In fact, people over the age of 65 have 50% more debt than any other age group and are one of the fastest growing demographics filing for bankruptcy.
There is also a misconception that filing for bankruptcy is a humiliating process that involves going to bankruptcy court. Though there is one short hearing, it is not in a courtroom and your attorney will attend with you to make sure everything works perfectly. The hearing process is nowhere near as stressful as being doggedly harassed by debt collectors for several years.
Though it is important to make sure that you know all of your options before taking any action, filing for bankruptcy can bring significant and much needed relief to senior citizens faced with crushing debt. Why spend the rest of your years being hounded by collectors and worrying about passing your bills onto your loved ones when you can enjoy your hard-earned retirement instead? Remember, bankruptcy exists to help, not to punish.
Are You Struggling With Debt?
If you’re battling a mountain of debt, know that you have options. Contact one of our experienced bankruptcy attorneys today for a free consultation to learn about your debt management options, including those that don’t involve bankruptcy. You can be debt-free at any age.