Senior Citizens and Bankruptcy: What You Need to Know

As costs for health care and living expenses continue to rise, many older Americans find themselves considering bankruptcy as a way to manage their debts.

While there are some benefits for seniors thinking about bankruptcy, it's important to consider whether it's the right step, especially for those with a lot of assets.
 

Do You Need to File for Bankruptcy?

Before deciding on bankruptcy, it's essential to understand when it might not be necessary or advisable:

1. You’re “Judgment Proof”

If your income and assets are mainly from sources that creditors can't touch (like Social Security, modest personal belongings, a car, and most retirement accounts), you might be considered "judgment proof."

This means creditors can't take these assets to pay off debts. In such cases, filing for bankruptcy might not offer much additional protection, though it can stop harassing calls from creditors.

2. You Have Too Much to Lose

If you have a significant amount of unprotected assets or income, bankruptcy might not be beneficial. In a Chapter 7 bankruptcy, these assets could be taken and sold to pay debts. In Chapter 13, you would need to make payments based on your assets and income, which might be high.
 

When Bankruptcy Makes Sense for a Senior

Bankruptcy could be a reasonable option under certain circumstances. Consider the following:
 

• Can your debts be cleared through Chapter 7?
• Do you need help catching up on mortgage or car payments via a Chapter 13 payment plan?
• Can you protect most of your property from being taken to pay debts?
• Will the amount of debt cleared make the process worth it?
• Are you eligible for Chapter 7, or can you manage a Chapter 13 payment plan?

Seniors should also think about specific issues like:
 

• Medical and Credit Card Debts: These types of debts are easier to have wiped out in bankruptcy.
• Home Equity Protection: While some equity in your home can be protected, the amount varies by state.
• Retirement Accounts: Most of these are safe from bankruptcy proceedings, but the specifics can depend on the type of account.
• Social Security Benefits: These are also protected but need to be kept separate from other funds to maintain that protection.

Withdrawing from retirement accounts can complicate things since withdrawals are treated as income, affecting bankruptcy eligibility and protection.

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