Your retirement years are supposed to be when you kick back, relax, and enjoy the fruits of your many years of labor. But life is unpredictable, and medical emergencies and other unexpected circumstances can lead to big bills that quickly deplete your available funds. If you’re being buried by bills and pursued by creditors, then bankruptcy may be the best answer for you. Here’s what you need to know about filing for bankruptcy during retirement.

No matter when you’re considering bankruptcy, one of the first steps is determining which Chapter is the right one for you. While Chapter 7 can discharge almost all of your debts, it is not automatically available. You have to pass a means test and establish that your income is insufficient to pay off your debts in order to qualify. If you have sufficient income to disqualify you for Chapter 7, then Chapter 13 is most appropriate, creating a payment plan designed to help the debtor meet their obligations. For retirees who are no longer receiving an income, there is a good chance that they will qualify for Chapter 7, as Social Security benefits are not included in the means test, though income from a pension or retirement savings account will be.

The thing that retirees fear most about bankruptcy is the possibility of having to sell off assets. Each state has its own rule for what belongings are exempted from being liquidated,  and if your state’s rules do not protect the assets most important to you, there is a chance that federal exemptions will. One way or another, retirement accounts (including 401(k) plans, 403(b) accounts, pensions, and profit-sharing plans are all fully exempt under federal law, and even traditional and Roth IRAs are protected up to more than a million dollars as long as you leave the funds in the plan. If, however, you take money out it can automatically be subject to being viewed as income for the Chapter 7 means test unless you can show that you withdrew the money in order to pay for basic necessities and can impact the repayment plan created for you if you’re filing under Chapter 13.

Filing for bankruptcy during retirement years may be the right answer for those facing insurmountable debt, but it is always a good idea to consult with an experienced bankruptcy attorney before moving forward. For help understanding your options, contact us today.