There is a surprising trend in U.S. personal bankruptcies: The rising number of senior citizens petitioning for relief has risen to never before seen proportions. In 1991, a minute percentage of bankruptcy filers were over 65. Now, seniors account for more than 10% of filers, totaling well over 100,000 annually.
Less surprisingly, more than three quarters of senior bankruptcy filers make less than the median income for their area.
This “graying” of bankruptcy seems counterintuitive at first. We’ve been taught that younger people take the risks that end in bankruptcies, such as buying an expensive home or car, loading up on credit card debt in hopes of making higher income later, starting a business or making risky investments. Our economic system incentivizes risk taking and provides bankruptcy relief because a certain number of risk takers must inevitably wash out.
Few people over the age of 65 take the above risks. They instead rely on conservative investments, fixed income financial vehicles and Social Security. Such a demographic, conventional wisdom tells us, would only file bankruptcy in rare cases involving extraordinary circumstances. In 1991, that was true. Today, living the conservative financial life of a pensioner no longer insulates many households from risk. Risk has become systemic rather than personal and seniors are going bankrupt as a result.
How changes in the economic and retirement system have increased senior bankruptcies
Many forces contribute to the increase in senior bankruptcies. Trade unions have weakened, wages, when adjusted for inflation, have stagnated, and the pension system is on its last legs. All these factors affect people as they age, hitting many of them during retirement.
Medical costs also loom large in the senior bankruptcy crisis. Medicare cuts continue to squeeze seniors. Some can buy Medicare supplement plans to get by, but even these have limitations. Those who can’t afford supplemental plans may find themselves drowning in debt after a prolonged illness.
Has the do-it-yourself pension system worked?
If you ask bankrupt seniors, most will likely say no. The 401(k) models touted by plan administrators and financial companies require 40 years of steady employment with enough compensation for significant contributions.
Here, an irony strikes. In the eras where pensions were readily available, working for a company for 40 years and then retiring was commonplace. Now that workers must fund their own pensions, lifetime employment is a thing of the distant past. Interruptions in work are normal, and some of them can be long lasting and painful.
Often, the result not just an inability to continue contributing to a retirement plan, but also the need to draw on those savings to cover basic expenses. For those on the lower rungs of the income ladder, it can be difficult or impossible to recover.
In addition, many workers cannot remain in their professions until retirement. Many are let go while still in their 50s. This often leads to taking jobs with lower income and a loss of the ability to generate enough earnings to continue funding retirement plans. With cuts in Social Security and the high costs of health- and long-term care insurance, it’s no wonder so many older Americans are struggling to make ends meet.
When does a bankruptcy filing make sense for seniors?
Seniors have some legal protections not available to their younger counterparts, so, many times, bankruptcy may be unnecessary. Creditors cannot garnish Social Security payments and money in retirement accounts also remains protected. If all your assets can be protected from creditors, a bankruptcy filing may be counterproductive. It could damage your credit a jeopardize any valuable property you own.
However, when big medical bills or credit card collections threaten to destroy your financial security, a bankruptcy filing may make sense. Here are some questions to help identify if bankruptcy would help of hinder your situation:
• Do you have unmanageable debts (medical, credit cards, car loans, payday loans, others) that can be discharged in a Chapter 7?
• Would a Chapter 13 bankruptcy allow you to catch up on mortgage or car note arrearages?
• Does most of your property qualify for exemption from liquidation in bankruptcy?
• Can you pass the Chapter 7 means test?
Personal bankruptcy can provide a tremendous relief, but only if it suits your situation. It’s important to evaluate how many of your debts are dischargeable in bankruptcy and what property is protected. If you think bankruptcy may help you, consult with a bankruptcy attorney who can advise you on these questions and clarify if filing is a wise decision.
You will find the bankruptcy lawyers at our legal practice in Massachusetts, compassionate and skilled at understanding the realities common to debt relief at any stage of life. At Hines Law we provide clear and practical advice so that our clients capture the best the legal system can offer. Our expertise includes Chapter 7 and Chapter 13 filing as well as assisting our clients implement a plan to rebuild their future. Find out what debt relief option is best for you and call us for a Free Case Evaluation!