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Retirees, Senior Citizens and Bankruptcy

Due to high rising medical costs and decreasing retirement plans more retired and senior citizens are finding themselves in an increasing amount of debt. Some of them have no idea what to do while others are considering the possibility of filing for bankruptcy. There are some advantages for retirees and senior citizens in bankruptcy, but if they have a lot of nonexempt assets and property, bankruptcy may not be the best choice.  However, it has been our experience that most retirees and senior citizens that actually need to file bankruptcy can file – and without losing any of their assets.

Medical Bills Can be Discharged in Bankruptcy.
As mentioned before, medical bills are one of the leading causes of bankruptcy for senior citizens.  Lucky for those that are filing, medical expenses are one of the debts that easily discharged through bankruptcy.  However keep in mind that bankruptcy only discharges debts that you already have at the time you file.  So reconsider filing if you feel like you will incur more medical debt until all your bills are in.  It is important to remember that a Chapter 7 filing can usually eliminate all medical debt in as little as a few months.

Protecting Your Home
Generally, the house is one of a retirees or senior citizen’s largest asset and most important – as it is normally where they spend their retirement.  If the filer has substantial equity in their home, then it is vital to make sure that the filer’s house is kept safe during bankruptcy.  Normally, during a bankruptcy, the trustee has the power to take your nonexempt property and liquidate it to pay off your creditors, this includes the home equity.  Luckily for the filer, there some exemptions offered through the bankruptcy code that offer filers a homestead exemption to protect some amount of their home equity.  It is worth mentioning that some states even offer elderly citizens a higher homestead exemption tailored specifically for them, so it is important to review your state’s bankruptcy exemptions before filing so that you can be aware of the property you can exempt.  Also, if you do happen to have substantial equity in your home, filing a Chapter 13 may be an option – and your home will not be at risk if you qualify.

Retirement Accounts and Bankruptcy
In most cases, retirees and senior citizens are usually living out their retirement on their retirement plans and to them those retirement accounts are just as important as their house. Luckily for an retiree or senior citizen that is interested in filing for bankruptcy, according to the federal law, almost all tax exempt retirement plans are fully exempt in bankruptcy.  Qualified (tax deferred) retirement accounts can be defined-benefit plans, profit sharing, 401(k)’s, 403(b)’s, and money purchase.  Roth IRA’s and IRA’s are protected up the amount of $1,245,475, this amount is adjusted every three (3) years so be sure to check the most up to date amount.  In addition, this million-dollar plus exemption does not apply to retirement accounts rolled over from a employer plan such as a 401(k).  Fortunately, these account values are fully protected under federal bankruptcy law.

Social Security Benefits and Bankruptcy
Even if it is a senior citizen that is wanting to file for bankruptcy, they still have to pass the means test to be eligible to file for a Chapter 7 bankruptcy.  In summary, the means test compares your average monthly income to your state’s median average income to decide if you can file Chapter 7.  If it is determined that your income is too high, you most likely still qualify for a Chapter 13.  Fortunately  for senior citizens, according to federal bankruptcy law, any benefits received under the Social Security Act are not counted as income and thus not applicable to (included in) the means test.  Thanks to this law, senior citizens have an enormous advantage when it comes to filing for bankruptcy, especially if most of their income comes from their social security benefits.  therefore, so even if a retiree or senior citizen has additional income from other sources, they likely are still be eligible to file a Chapter 7 bankruptcy case.

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