Bankruptcy and Retirement
Debt can put your life savings at risk whether you are currently saving up for retirement or you have already retired. The fact is that senior citizens are the quickest growing group of people filing bankruptcy in the United States. Data shows that the number of people filing bankruptcy over the age of 65 doubled from 2.1% to 4.5% in 2001; then another huge hike to 7% in 2007. You might think that the rising rate of bankruptcy with senior citizens is due to the high cost of health care expenses, but the real reason is… credit card debts.
The big question is this: What happens to your retirement money in a bankruptcy before you even retire? Is your Social Security vulnerable? Is bankruptcy a good idea for seniors? The following are a few common questions about bankruptcy and retirement and some general answers.
Can Bankruptcy Hurt My Retirement Funds?
It’s not likely. It doesn’t matter how much you have saved in your 401K, the money can’t be touched by a creditor if you file for a Chapter 7 bankruptcy or Chapter 13 bankruptcy. If your money is in an IRA, the funds are usually exempt from creditors up to a certain amount. BAPCPA (the “new” bankruptcy law) states that debtors can now exempt up to one million dollars in an IRA account.
What Happens if I’m Already Retired and Taking Retirement Payments?
If you are getting income from your retirement account the money can be more accessible to your creditors. It really depends on your living expenses. In a Chapter 7, anything about what you require to support yourself might be fair game. For a Chapter 13, your retirement income will most likely be part of determining how much you can afford to repay what you owe.
Is my Social Security Vulnerable to Creditors?
Under federal law, Social Security and your disability income is protected in a bankruptcy. Once it gets into your bank account, however, the money is in danger of garnishment. But there is a bit of good news. With a 2011 rule, banks have to show whether federal benefits are included in your account before a garnishment can happen. If Social Security or other benefits from the government are included, the amounts of 2 months’ worth of benefits are protected. For more advice about how to safeguard Social Security and other benefit payments, we recommend that you speak with an experienced Southern Illinois Bankruptcy Attorney.
Can I Get Rid of Medial Expenses by Filing Bankruptcy?
You can if you qualify for Chapter 7. Medical bills are included in the types of debt that can be wiped out. If you don’t qualify for a Chapter 7 because you have the income to meet these debts, you might want to think about Chapter 13. With a Chapter 13 you can pay back your creditors over a set period of time. This includes medical bills.
Is Bankruptcy for Seniors a Good Idea?
It really depends on your individual case. If you are overwhelmed with unpaid medical expenses, high credit card interest and late fees that are piling up, a bankruptcy can offer you some relief. Keep in mind that some seniors may be what is called “judgement proof.” That means that you just don’t have anything for creditors to take if they take you to court and win. If you are in this situation, bankruptcy may not be necessary, but bankruptcy for seniors can be complicated.
