Filing for bankruptcy is frequently depicted as a fresh start – a chance to start over financially. Though the idea of new beginnings and discharged debt may be appealing in the prime of your life, it feels particularly dissonant if you are elderly and unable to generate new income. Many seniors have spent a lifetime making mortgage payments and fear that they will lose their homes outright if they file for bankruptcy, yet don’t know what else to do. Here are some helpful bankruptcy tips for the elderly.

The first thing that seniors need to understand is that bankruptcy may be unnecessary because their income may be protected from creditors. Collectors may make threats, and may even win a judgment in court, but the truth is that many seniors have so little to fear. This is especially true if they don’t have much income and don’t own your own home or have significant assets. Social Security payments cannot be touched by creditors unless your debt is for certain taxes, child support or student loans, and they can’t take more than 25% of other wages.   Those with few assets and little or no equity in their home have no fear of assets being sold, as states protect you from losing basics like clothing, some equity in a car and furniture.

For those seniors who do have assets or who own or have significant equity in their home, there are two types of bankruptcy that are available:

  • Chapter 7 allows the discharge of most or all debts but involves turning over nonexempt assets to be sold to pay off creditors. To qualify for Chapter 7, your income needs to be below a certain threshold. This income does not include either Social Security or Social Security Disability payments, both of which are not counted and which are protected from creditors. Seniors may be at risk of losing their homes unless they are protected by a homestead exemption. Each state is different, and it is a good idea to check and see what rules apply where you live.
  • Chapter 13 allows you to keep your property and create a payment plan for repaying your debts under revised or extended terms. Any Social Security income that you receive will be factored in to the calculation for your monthly repayment plan. If you want to keep your assets or are not eligible for Chapter 7 because you have too much income, Chapter 13 may be a better option.

Most seniors are concerned that a Chapter 7 bankruptcy filing would jeopardize their savings, but most retirement accounts are protected in bankruptcy to an unlimited amount. The only exception to the rule exempting retirement accounts to an unlimited degree is for traditional and Roth IRAs, which remain exempt until their combined value is over $1.2 million.

If you’re considering bankruptcy, contact our team of experienced and compassionate attorneys to discuss your unique situation.

 

 

 

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