Personal Bankruptcy and America’s Seniors

According to a recent article in the New York Times, many of America’s senior citizens are facing enormous debt loads, and personal bankruptcy may be a way to help protect their assets. To be sure, consumer bankruptcy “can be a valuable tool to protect retirement assets,” and it is certainly an option to which more older adults should give serious consideration.
Do you have questions about filing for Chapter 7 bankruptcy? Don’t hesitate to speak with an experienced Oak Park bankruptcy lawyer. An advocate at the Emerson Law Firm can answer your questions today.
Seniors Can Still Hit the Financial “Reset” Button
For many seniors, filing for Chapter 7 bankruptcy means an opportunity to “hit the financial reset button.” How do older adults get into situations in which they have unmanageable debt? A number of elderly Illinoisans end up with significant debt from medical expenses or providing money to their children. No matter what the reason might be, personal bankruptcy can provide relief from the anxieties associated with debt and concerns about living a comfortable life during retirement.
When it comes to filing for consumer bankruptcy, one of the biggest obstacles for seniors is the stigma. Indeed, “anecdotal evidence suggests that shame at being in financial turmoil frequently prevents retirees from getting help early.” According to Deborah Thorne, an associate professor of sociology at Ohio University, “people usually postpone bankruptcy for several years before filing.” This tendency can be harmful, however, particularly for older Americans who are concerned about retirement assets.
As Thorne explains, by continuing to spend retirement assets in an attempt to manage debt, “retirees risk a downward financial spiral from which they are less likely to recover than younger people.” Instead of using such assets to pay down debt, older adults should be defending their assets and considering ways to protect themselves.
Retirement Income and Consumer Bankruptcy
Why should seniors focus on the tool of bankruptcy instead of using retirement savings to pay down medical and other debts? Under federal law, “retirement income and saving are usually untouchable during bankruptcies.” In other words, a retiree can file for Chapter 7 while largely being able to protect his or her retirement assets. Specifically, Social Security payments, pensions, 401(k) accounts, qualified for-profit sharing plans, and individual retirement accounts (IRAs) up to $1.245 million “are exempt from creditors.”
For seniors who have concerns about losing their homes, it is important to remember that a homestead exemption can help to protect their real property. The Illinois homestead exemption is $15,000, and it can be doubled for married couples.
Retirees should also think about negotiating with creditors. While it is important to have an experienced advocate on your side to help with this process, you should remember that creditors know they cannot obtain money from most retirement assets, and thus they may be more willing to negotiate.
While your credit score will be affected when you file for personal bankruptcy, it is entirely possible to bounce back—even if you’re at retirement age. Rebuilding your credit after a Chapter 7 bankruptcy may be easier than you think. You should be sure to discuss your particular situation with an experienced Chicago bankruptcy attorney. Contact us today to learn more about how we can help.
See Related Blog Posts:
Questioning Bank of America’s Consumer Relief Measures

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