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Bankruptcy May Be the Better Choice for Debt-Laden Seniors
- May 15th, 2015
The conventional wisdom is that you should always pay off your debts, but that may not make the most financial sense for some debt-laden seniors. In certain cases, filing for bankruptcy may be the better choice.
Many seniors are struggling with large credit card bills and monthly debt that exceeds their income. Rather than drawing down retirement assets, bankruptcy may make sense for these individuals – especially if they have already paid off their mortgages – because they will be less affected by poor credit ratings. Filing for bankruptcy can also eliminate a senior's existing medical bills. Another benefit is that most retirement accounts are exempt, which means the funds do not have to be sold during bankruptcy proceedings.
Local Elder Law Attorneys in Ashburn, VA
Hale Ball Carlson Baumgartner Murphy PLC
Attorney Samantha Simmons Fredieu is an associate at Hale Ball. Ms. Fredieu graduated magna cum laude from Vermont Law School where she was the symposium editor on the Vermont Law Review, a production editor on the Vermont Journal of Environmental Law, and a member of the Moot Court Advisory Board. She has clerked for...
The Estate Planning & Elder Law Firm PC
Bill founded The Estate Planning & Elder Law Firm, P.C. in 1994. Bill limits his practice to the areas of estate planning and administration, incapacity planning, Medicaid, asset protection planning, and elder law. He is one of (15) fifteen attorneys practicing in Virginia, Maryland and the District of Columbia, ce...
Margaret A. O'Reilly, PC
Margaret A. O’Reilly is an estate planning and elder law attorney with over thirty-five years of legal experience. Attorney O’Reilly graduated from Duke University with a degree in psychology, and received her law degree from Northeastern University School of Law in Boston, Massachusetts. For over 15 y...
There are two types of bankruptcy for individuals: Chapter 7 and Chapter 13. With Chapter 7 bankruptcy, you can discharge all of your debts, but you must sell some of your property to pay your creditors. However, many assets (like the equity in your house) are protected from bankruptcy, so in reality you may not have to surrender any property. In order to file Chapter 7 bankruptcy, you need to pass a means test, and if your income is too high, you may not qualify. (Social Security benefits do not count toward income.) Chapter 13 bankruptcy requires you to pay back your debt over time, but you are not required to sell any property. To qualify, you need to be able to show that you have the ability to slowly discharge your debt.
Bankruptcy is not the right choice for everyone, however, and seniors should consult their attorney before making any decisions. For example, while bankruptcy gets rid of existing medical debt, it doesn't do anything about ongoing debt. In addition, Social Security and pensions are exempt from debt collection, so low-income seniors may not need to worry about debt as much. Many people feel morally obligated to pay off debt, and walking away from debt means higher fees and interest rates for others, so the decision to file for bankruptcy should not be taken lightly.
A May 13, 2015, New York Times article discussing the bankruptcy option for seniors suggests trying to negotiate with creditors first. “A lot of people who jump into bankruptcy never know what settlement they could have had,” says one attorney.
For more information about bankruptcy from the U.S. Courts, click here.
Last Modified: 05/15/2015