Recent reports highlight an alarming trend: an increasing number of seniors are burdened by credit card debt and are facing foreclosure. In fact, according to a University of Michigan Law School study, "the age sixty-five-and-over cohort is the fastest-growing age demographic [seeking bankruptcy protection]."
That seniors are reaching out and seeking bankruptcy assistance, however, is not the most troublesome issue. It is the cause of such financial hardship, and the reason why additional seniors are failing to file for bankruptcy, that warrants close consideration.
On this Senior's Day, we'll debunk two popular bankruptcy myths: 1) that bankruptcy will force you to relinquish your home, and 2) that bankruptcy will deplete your pension.
1) Protections for Your Home
Of primary concern to seniors is the safekeeping of their residence. Not only can bankruptcy allow seniors to protect their home as a dwelling, it can also help them preserve it as an asset for their heirs. The Bankruptcy Code allows debtors several key exemptions (i.e., assets or cash that the debtor can keep, even if everything else is liquidated). Of particular relevance is the homestead exemption, which prevents creditors from receiving all of the equity in a debtor's home.
In addition, bankruptcy may also indirectly protect the home by preserving existing equity for the benefit of the debtor's heirs. The most commonly discharged debt in bankruptcy is credit card debt; almost all such unsecured debt can be removed in bankruptcy. If the debtor does not file for bankruptcy, however, unsecured creditors can pursue the equity in the debtor's home -- even after the debtor has passed away. By contrast, a timely bankruptcy filing and a discharge of creditors' claims will bar unsecured creditors from pursuing the family home, whether now or in the distant future.
2) Protections for Your Pension
A second concern faced by seniors is the prospect of a depleted pension. The Bankruptcy Code provides formidable exemptions for many types of pensions. A bankruptcy filing ensures that the exempted funds cannot be reached by the bankruptcy trustee or by creditors. For example, your "401(k)" is exempt -- and so are plans under Section 401(a), 403, and 457. Speak to your attorney for a complete assessment of your pension and whether it can be protected by a bankruptcy filing.
Overall, a timely bankruptcy filing will not only protect a retiree's home and pension, it can also provide emotional benefits (such as welcome relief from credit card and medical debt, as well as from creditor phone calls) -- thus ensuring that the proverbial Golden Years are just that much brighter.