Understanding the Impact and Scope of Bankruptcy for Seniors
American society is in a peculiar place right now. In past generations, elders were some of the wealthiest and most secure among us, as they retired from lifelong, stable careers with healthy savings accounts waiting for them to enjoy. Today, though, seniors are increasingly struggling to make ends meet after their working years have ended. As people keep living longer and pensions and retirement packages become less and less certain, there is less for seniors to live on – and a higher likelihood of financial disaster. Bankruptcy is a practical solution for many, but bankruptcy for seniors requires expert guidance and prudent planning.
Here’s what you need to know if you or a loved one are facing bankruptcy in the golden years of life:
Where to Start Depends on Your Current Income Situation
Seniors who are still actively working and earning income will approach bankruptcy differently than those who are living entirely on retirement, savings, or government income. This applies to more seniors every year, as Americans are now working well past the typical retirement age on a regular basis. Wage garnishment may be a primary reason for considering bankruptcy for seniors; most seniors live on relatively little income in the modern day, so garnishments can be detrimental to their living situation. Bankruptcy can grant a pause in the collection of these garnishments – called an automatic stay – and even wipe out the debt entirely if the case receives a debt discharge. This way, seniors in dire financial straits can continue to receive their full wages – all while chipping away at overwhelming debt.
Bankruptcy for Seniors Who Aren’t Working
While more and more seniors are working well into their golden years, there are still many who cannot. Even those who plan well for retirement may face a financial crisis for a variety of reasons. Bankruptcy for seniors is often a way of protecting property and other assets from being seized by creditors as bills and debts mount.
Protecting What’s Yours – and Your Family’s
The primary reason that most seniors file for bankruptcy is to offset debt that they are unable to pay down on their current income. However, many seniors also file for bankruptcy to guard the assets they currently have and that they would like to leave to future generations. Understanding the limits of what bankruptcy is capable of – and what it’s not – can help make the bankruptcy planning process a smooth one.
One of the biggest worries most have when it comes to bankruptcy for seniors is the loss of a home or other major property. Choosing the right type of bankruptcy can prevent this from happening; chapter 13 bankruptcy allows filers to keep their property and other assets if they are making the minimum required payments. Those who are in deeper debts or simply can’t make minimum monthly payments toward a resolution may have no choice other than to file for a chapter 7 bankruptcy.
The problem with this is that many seniors have either paid off their mortgages or have a large amount of equity invested in their properties. This makes their homes more valuable – and more vulnerable to seizure for sale and recovery of debt. There are exceptions, though. You may be able to claim part or even all the value of your home as part of a homestead exemption. The details and regulations for these exemptions vary by state and there are drawbacks to declaring a homestead exemption, so be sure to contact a bankruptcy lawyer in your area to find the full rundown of what you’ll need to know before claiming it.
Equity Changes Everything
It’s an unfortunate fact that the more equity you have tied up in your home or automobile, the more vulnerable you might be to have either or both assets seized. However, the choice that some seniors make to gift or sell these items to loved ones under market value as a way of protecting them from seizure can run the risk of landing you in jail for fraud. It simply isn’t the best option – and it’s also not your only option. Talk to a legal professional about ways to claim these assets as exemptions or otherwise protect them during bankruptcy for seniors.
What Else Can You Claim as an Exemption?
The general idea behind exemptions is that they are items or supplies that you need for work or everyday life. Some of the things that seniors may be able to claim as exemptions from seizure and sale include:
- Basic household furnishings and goods – basically anything that is not considered a luxury item in your home.
- Personal effects that might otherwise have value, such as expensive formalwear, wedding and engagement rings, sentimental jewelry, etc.
- Tools used for work, be they mechanical or technological tools.
Sometimes, seniors may even be able to keep the money they have stowed away in retirement accounts. The important factor in protecting this money is keeping it separate from personal accounts; once you add it into the mix in your regular checking and savings accounts, it’s fair game for seizure. Keeping it separate helps to identify and verify what it is and what it’s for, so you can use it accordingly without fear of losing it.
What if You’re Judgment-Proof (collection-proof)?
You may have heard a lawyer or even a family member who has experience bankruptcy in some way mention the concept of being “judgment-proof.” What does that mean? Does it apply to your situation?
To be judgment-proof is to be beyond the reach of creditors. Judgment proof is actually a misnomer as the creditors will still be able to get a judgment against you, however, they will not be able to collect on the judgment because the debtor does not have any non-exempt assets to collect against. A better name would be “collection proof” because those who have no appreciable assets to their name – such as valuable property, money in the bank, vehicles of
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