Many seniors and older adults are keeping a sad secret about their financial situation: they are in serious debt and they do not know how they are going to get out of it. Bankruptcy among seniors and older adults is one of the fastest growing categories of bankruptcy filings and it can be a good option for solving financial problems.
A recent AARP report found that older adults (age 50+) now have higher overall credit card debt than younger people. However, in general, older adults are not frivolous spenders. They are significantly less likely than younger people to have run up credit card debt purchasing non-essential goods and services.
Instead, the AARP found that older adults tend to have credit card debt from:
– Medical expenses;
– Car repairs;
– Home repair;
– Basic living expenses (including rent or mortgage payments, groceries, utility bills or insurance); or
– Taking a credit advance to give money to, or pay the debts of, other relatives.
Job loss and the bad US economy were significant reasons older adults incurred credit card debt. They used credit cards to pay for basic needs because they did not have enough money in their savings or checking accounts.
The AARP report made it clear that attempting to repay credit card debt was a priority for older adults. Older adults frequently drew on retirement funds to pay off credit card debt. Many older adults also used their home equity to pay down credit card debt by refinancing, obtaining a second mortgage, or taking out a home equity loan.
Bankruptcy Considerations For Seniors And Older Adults
Whether a senior or older adult should file for bankruptcy depends on what kinds of debt or debts they have.
Bankruptcy divides debts into secured and unsecured debt. Secured debt is a debt that is backed by collateral. It typically includes mortgages and car loans. It can also include real estate property taxes, homeowner dues, and governmental or contractor liens.
In contrast, unsecured debts is a debt that is not secured by collateral. It may include medical bills, credit card debts, utility bills, and other debts as long as they have not gone to the point of a an enforced court ordered judgment.
Keeping Your Florida Home
Florida has an unlimited homestead exemption. This usually means that all of the equity in a home is protected from creditors as long as the property is less than half an acre and the home was not purchased within 1,215 days before the bankruptcy was filed. This exemption often can be important for older adults because they frequently have significant equity in their home.
Keeping Your Retirement Accounts
In Florida, IRA and 401K plans, as well as other properly established tax qualified plans, are exempt assets. This means these accounts can be kept in a bankruptcy. They can help with providing a fresh start after bankruptcy.
Social Security Benefits
Anyone who wants to file for a Chapter 7 (also called a straight or liquidation bankruptcy) must pass the “bankruptcy means test.” The means test compares your average monthly income against the median income for Florida. If the income is too high, Chapter 7 bankruptcy is not a choice.
In a Chapter 7 bankruptcy, Social Security and Social Security Disability benefits are not included when calculating eligibility for Chapter 7 relief. Also, in a Chapter 7 bankruptcy, Social Security and Social Security Disability benefits are protected from being taken by creditors. However, in a Chapter 13 bankruptcy, Social Security benefits are included when determining how much must be paid each month under the repayment plan.
Florida Bankruptcy Attorney
At the Law Offices of Kelley & Fulton, P.L., we understand that tough economic times, and not a lack of personal financial responsibility, cause people to file for bankruptcy relief. And we know that the decision on whether to file for bankruptcy can be difficult. If you are in the West Palm Beach area and you need help deciding whether bankruptcy is the right option for you, please call us at 561-491-1200.