Bankruptcy to relieve debt is an option for many senior citizens on a fixed income. However, bankruptcy may not make sense in every situation. Bankruptcy lawyers can help senior citizens considering bankruptcy determine the best course of action.
Types of Bankruptcy
Chapter 7 Bankruptcy: Most of the debt is discharged. Property exemptions may apply to some assets, such as a home or a car. Nonexempt assets are turned over to the bankruptcy trust to be sold. Income requirements must be met.
Chapter 13 Bankruptcy: Assets and property are not sold. Some debts are repaid through a payment plan. Creditors will be unable to take collective action against assets while on a payment plan.
When It Doesn’t Make Sense To File
Seniors with equity in their homes should first determine if homestead exemptions will protect their equity. Married seniors filing in Illinois can protect up to $30,000 in capital. The exemption for a single person is $15,000. Some seniors may end up losing their homes if they file chapter 7 bankruptcy. Bankruptcy lawyers can examine assets to determine how to protect assets and which type of bankruptcy to file.
When Seniors Should Consider Filing
Bankruptcy can help seniors who are facing overwhelming debt. Pensions are decreasing, but medical costs are increasing. Many senior citizens file bankruptcy due to medical debt. Chapter 7 bankruptcy can eliminate all outstanding medical bills. Future debt cannot be included. If costly procedures are expected shortly, seniors might consider waiting until after the procedure to file. Then all bills can be included in the bankruptcy.
Seniors in danger of losing their home or vehicles may also consider filing for bankruptcy. Bankruptcy can protect seniors from harassment and threats of lawsuits from creditors. Bankruptcy laws prohibit creditors from contacting seniors in an attempt to collect debts.
Social Security And Most Retirement Accounts Are Both Exempt
Seniors must qualify for Chapter 7 by income. If income is too high, chapter 7 may not be an option. Social Security benefits are not used for income calculations, providing an advantage for seniors considering bankruptcy.
Many retirement accounts are protected in bankruptcy. This includes:
- Money purchase plans
- Defined-benefit plans
Roth IRAs and tradition IRAs are exempt up to $1,283,025 as of this year. There are no limits on the other types of retirement accounts.