How to Deal With Debt in Retirement
More older adults, including those who have retired, are filing for consumer bankruptcy. For some people, filing for Chapter 7 bankruptcy or Chapter 13 bankruptcy is the best decision to deal with debt. Yet bankruptcy presents particular difficulties for seniors given that there is not as much time to bounce back financially. Indeed, filing for bankruptcy after retirement can result in the debtor needing to return to work in order to get back on his or her feet. A recent article in Kiplinger discusses tips for older adults dealing with debt in retirement. We want to provide you with more information about managing debt after you retire, and to give you more information about what you might expect after a bankruptcy during your retirement.
Tips for Managing Particular Types of Debt
As the article emphasizes, “declining income and medical expenses are the leading causes of older Americans’ financial stress.” About two-thirds of retirees who file for bankruptcy do so as a result of medical debt since “Medical falls far short of covering seniors’ health care costs.” In 2013, the Kaiser Family Foundation reported that “more than one-third of traditional Medicare beneficiaries spent at least 20% of their total per capita income on out-of-pocket health care costs,” and that figure will likely increase to more than 40% by the year 2030.” Although medical debt can feel like the most overwhelming type of debt, the article actually underscores that seniors should not prioritize paying off medical debt first if they also have other types of debt. To be sure, “medical debt typically carries low or zero interest,” unlike credit card debt, and will not immediately impact your credit score. If you have medical debt, the health care provider is more likely to work with you on a payment plan.
Credit card debt, however, can be overwhelming and extremely difficult to pay off. The article points out that interest rates are close to 18% for people with good credit, and higher for others. With such high interest, it can be extremely difficult—or even impossible—to pay off a high credit card bill. How should seniors manage credit card debt? It may be possible to transfer your balance to a lower interest credit card. This kind of balance transfer can be particularly helpful if you have a credit card that offers a 0% interest rate for a certain period of time.
Mortgage debt can also be a problem for some seniors. Once you have retired, it can be more difficult to qualify for certain types of long-term mortgages, and you may not see a path toward paying off your home. You may want to consider refinancing, or it could make sense for you to focus on paying off your mortgage prior to your retirement years if possible. If you are struggling to make monthly mortgage payments and have already retired, filing for Chapter 13 bankruptcy could be an option to avoid foreclosure.
Bankruptcy During Retirement
As we mentioned above, the prospect of filing for bankruptcy during your retirement can be anxiety-inducing. However, it is important to keep in mind that bankruptcy exemptions in Illinois likely will allow you to retain most retirement assets, and you will also be eligible for other exemptions so that you can keep certain types of property even if you file for Chapter 7 bankruptcy.
Under Illinois law, many types of property are exempt when you file for bankruptcy, including but not limited to the following:
If you have questions about managing debt or filing for bankruptcy in retirement, an Oak Park bankruptcy attorney can help. Contact the Emerson Law Firm to learn more.
See Related Blog Posts:
Chapter 13 Bankruptcy and the Holiday Season
Can I Discharge HOA Dues in Bankruptcy?
Tips for Managing Particular Types of Debt
As the article emphasizes, “declining income and medical expenses are the leading causes of older Americans’ financial stress.” About two-thirds of retirees who file for bankruptcy do so as a result of medical debt since “Medical falls far short of covering seniors’ health care costs.” In 2013, the Kaiser Family Foundation reported that “more than one-third of traditional Medicare beneficiaries spent at least 20% of their total per capita income on out-of-pocket health care costs,” and that figure will likely increase to more than 40% by the year 2030.” Although medical debt can feel like the most overwhelming type of debt, the article actually underscores that seniors should not prioritize paying off medical debt first if they also have other types of debt. To be sure, “medical debt typically carries low or zero interest,” unlike credit card debt, and will not immediately impact your credit score. If you have medical debt, the health care provider is more likely to work with you on a payment plan.
Credit card debt, however, can be overwhelming and extremely difficult to pay off. The article points out that interest rates are close to 18% for people with good credit, and higher for others. With such high interest, it can be extremely difficult—or even impossible—to pay off a high credit card bill. How should seniors manage credit card debt? It may be possible to transfer your balance to a lower interest credit card. This kind of balance transfer can be particularly helpful if you have a credit card that offers a 0% interest rate for a certain period of time.
Mortgage debt can also be a problem for some seniors. Once you have retired, it can be more difficult to qualify for certain types of long-term mortgages, and you may not see a path toward paying off your home. You may want to consider refinancing, or it could make sense for you to focus on paying off your mortgage prior to your retirement years if possible. If you are struggling to make monthly mortgage payments and have already retired, filing for Chapter 13 bankruptcy could be an option to avoid foreclosure.
Bankruptcy During Retirement
As we mentioned above, the prospect of filing for bankruptcy during your retirement can be anxiety-inducing. However, it is important to keep in mind that bankruptcy exemptions in Illinois likely will allow you to retain most retirement assets, and you will also be eligible for other exemptions so that you can keep certain types of property even if you file for Chapter 7 bankruptcy.
Under Illinois law, many types of property are exempt when you file for bankruptcy, including but not limited to the following:
- Pension benefits for many different types of employees, such as city and state employees, police and firefighters, teachers, judges, public library employees, and others;
- 401(k) retirement accounts;
- IRAs;
- Personal property exemption for necessary clothing, family pictures, health aids, and other types of property;
- 85% of your gross wages;
- Homestead exemption of up to $15,000 equity in your home;
- Motor vehicle exemption of up to $2,400 equity in your car; and
- Wildcard exemption of $4,000 per person.
If you have questions about managing debt or filing for bankruptcy in retirement, an Oak Park bankruptcy attorney can help. Contact the Emerson Law Firm to learn more.
See Related Blog Posts:
Chapter 13 Bankruptcy and the Holiday Season
Can I Discharge HOA Dues in Bankruptcy?
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