While bankruptcy often seems to be suggested as a way to stop harassment from collectors, if not totally eradicating one’s debts,  seniors and retirees should carefully consider their options thoroughly.  How much or how little property they have acquired may work against them.

If the elderly have inherited or acquired substantial assets, they are at risk of losing this property under a Chapter 7 bankruptcy filing. This is because in a Chapter 7 filing, most, if not all, debts are discharged and all nonexempt assets are turned over to the bankruptcy trustee for disposition in order to pay off creditors. On the other hand, if they do not have enough disposable income, they will not be able to sustain the high monthly payments for their Chapter 13 bankruptcy repayment plan, which normally requires settlement of their non-exempt property within three to five years. This goes without saying that a senior citizen who does not have assets, save for basic necessities, means that the creditor has nothing to collect.  As such, it is not necessary for an elderly in this circumstance to file for bankruptcy unless they are fed up with harassment from creditors or are concerned about a levy from a bank account.

What Does The Elderly Look Into Before Considering Bankruptcy?

Even if filing for Chapter 7 or Chapter 13 bankruptcy can offer the means to address financial debt, it is also of importance to understand the limitations of bankruptcy because there are certain issues that debtors should consider before filing bankruptcy. Issues such as how much of their debt can be discharged, how much of their property can be exempted, and whether they owe debts attached to a home or car, should all be considered. In addition to these concerns, a senior citizen or retiree should also look into a variety of issues such as home ownership, Social Security, and retirement funds. In some instances, the elderly are not immediately aware that their income and assets may be judgment proof and therefore, protected even without filing for bankruptcy.

Let’s Look Into Home Ownership and Its Impact on A Senior Citizen’s Bankruptcy Filing

In Chapter 7 bankruptcy, if you have substantial home equity not covered by a homestead exemption (an amount that is protected in bankruptcy),  your bankruptcy trustee will liquidate your house to pay your creditors. More often than not, this poses a higher risk to the elderly to lose their homes because most of them have already paid off their mortgages or have substantial amounts of equity in their homes.

You may also look into your outstanding medical bills. If you have accumulated huge bills with health care providers, these can make you consider filing for bankruptcy.  However, you should be aware that being judgment proof (if you are) means that no matter how aggressive the creditors are,  they cannot collect on these bills.

In this regard, it is best to consult with an experienced bankruptcy lawyer in Washington and Oregon so that you are aware of your options.

How do my Social Security benefits affect my bankruptcy filing as a Senior Citizen?

The same goes for Social Security benefits that you depend on. Rest assured, creditors cannot collect from these benefits. Yes, you need to declare them as part of your income when you file bankruptcy.  But, you can keep them if you hold them in a separate account. In Chapter 7 bankruptcy, your Social Security or Social Security Disability benefits are protected. These are also not computed as income in the Chapter 7 means test. Therefore,  if all or most of your income comes from Social Security, this means you are eligible for Chapter 7 bankruptcy. On the other hand, in Chapter 13 bankruptcy, your Social Security income is included in computing how much you must pay each month through your repayment plan.

Will my retirement accounts be affected?

In your golden years, you may find that you will be relying on your retirement accounts to get you by Most tax-exempt retirement accounts are protected in Chapter 7 bankruptcy by federal law, including 401(k)s, 403(b)s, profit-sharing, and money purchase plans, IRAs, and defined-benefit plans. IRAs and Roth IRAs are exempted up to a certain amount. However, if you withdraw money from a retirement account, this will be considered as income and will be treated differently in bankruptcy filings. In Chapter 7 bankruptcy,  the court will consider it income that gets factored in your Chapter 7 means test qualification if you receive a monthly payment from a pension or retirement account. Although the bankruptcy court cannot take any retirement benefits that are necessary for your basic needs, it could take amounts over and above what you need for your support and use it to pay back your creditors. For Chapter 13 bankruptcy filing, all of your retirement accounts are safe. However, retirement income will help determine what portion of your unsecured debts you need to settle in your Chapter 13 repayment plan. It is best to keep your retirement withdrawals separate from Social Security benefits so that the Social Security benefits remain protected. Retirement withdrawals may be subject to a bank levy by a creditor.

Contact a Bankruptcy Lawyer in Seattle, Tacoma or Vancouver

At this stage in your life, it is important to protect your interests by consulting an experienced bankruptcy lawyer in Washington and Oregon. Talk to us at Northwest Debt Relief Law Firm and let us help you enjoy your twilight years.

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