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Special Considerations for Seniors Filing Bankruptcy

When people enter the last decades of their lives, their thoughts are typically occupied by slowing down, retiring, and spending more time with family and friends, not filing for bankruptcy. For many of today’s seniors, however, financial stability is not a reality. The debt load of those over 60 has significantly increased over the past decade, and these seniors are taking more debt than any previous generation into retirement. Rising student loan debt among individuals 50 years and older is of particular concern, since their highest earning years are likely behind them, and for those in default, the garnishment of Social Security is the standard method used by the government to recover any unpaid portion. Any amount of debt at this stage can seem overwhelming since the allocation of financial resources has to be more closely monitored, but bankruptcy may offer some relief if outstanding debt is beyond one’s means to pay. However, the factors that affect whether bankruptcy is an appropriate option are different at this life stage, and should be considered when making this decision. A discussion of the special concerns seniors may face when contemplating bankruptcy will follow below.

Issues Increasing Debt

It is not so clear why the current generation of retirees is holding more debt than any before. One source of unanticipated expense may be their children or other younger family members. The generation currently entering the workforce en mas, millennials, has a noted lack of financial stability that has resulted in them living at home longer and relying on their parents more for support due to the recent economy. This problem often manifests through parents taking out loans for their children’s education. A substantial portion of seniors have taken out their own student loans, as well, to fund job retraining following the 2008 recession. While these are unlikely to be the only factors contributing to increased debt among seniors, they do represent new costs that previous generations did not face.

Assets Protected

A concern most seniors have when considering bankruptcy is their ability to retain assets. As opportunities to generate additional income diminish, keeping what one already owns is crucial. To that end, certain assets are exempt from Chapter 7 bankruptcy liquidation so that debtors are not completely wiped out. Two assets that are of particular concern to this group are homes and retirement accounts. These two assets are usually the most valuable property a person owns, and keeping as much as possible is essential to future financial security. Homes are not exempt from bankruptcy, and will likely need to be sold. However, bankruptcy law allows debtors to keep part of the equity a home may hold, called the homestead exemption, and in Indiana, that amount is $17,600 for individual debtors and $34,200 for debtors filing jointly. In addition, most retirement accounts are also exempt from bankruptcy liquidation. The following accounts are completely exempt:  

  • 401ks,
  • Pensions and profit-sharing plans.
  • IRAs and Roth IRAs are protected up to $1,283,025.

Income

Chapter 7 bankruptcy imposes a means test, based on a person’s income, to determine if he or she qualifies. However, income received from any Social Security program is not counted as income, though it does need to be disclosed. Nevertheless, if the debtor has a significant amount of monthly disposable income, Social Security payments would be factored into potential disqualification.

Get Legal Advice

Feeling the crush of overwhelming debt is an extremely difficult situation, but bankruptcy may be the option you need to get a fresh start. Attorney Christopher L. Arrington represents clients in Chapter 7 bankruptcy matters, and understands how unanticipated life events can completely throw off financial security. He works with clients in the Indianapolis area, and is available to evaluate your financial situation. Contact him to schedule an appointment.



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