Senior Citizens and Bankruptcy: When the Wolf is at Grandma’s Door

Guest post written by Philadelphia Bankruptcy Lawyer, Dan Mueller

When I first started taking bankruptcy cases in the 1990s, I rarely had a senior citizen as a client.   Today, it is not unusual to see people in their 70s and older in desperate financial straits.  (My oldest client is 90.)  Most of us assume that between Social Security, pensions, Medicare, and other benefits seniors are living better than most.   Although that image of the financially secure retiree may still hold true for some, times have changed for many seniors.   The decline of pensions, increased medical expenses, predatory lending, and support for struggling adult children have left too many seniors with mounting debts and dwindling resources.   Many seniors are forced to use credit cards to pay for prescriptions, medical co-pays, and other necessary items.   For seniors unable to make more than minimum payments, these small debts accumulate rapidly.

How are the folks?

The financial decline of seniors often goes unnoticed, even by their loved ones.   Frequently, seniors keep their financial problems from their children and others out of embarrassment.   Instead, they choose to sell off their personal possessions, mortgage their homes until all of the equity is gone, cancel insurance policies, and even go without meals and medication to try to satisfy their creditors.   By the time they seek help, the stress of bearing this burden alone is agonizing.   Bankruptcy can offer relief and allow seniors to go back to their lives without financial worries.

Will I qualify?

Seniors have specific concerns about bankruptcy.   Because they are on fixed incomes, many seniors worry that they will not qualify under Chapter 7 and will be forced into a payment plan under Chapter 13.    (Although some seniors will benefit from a Chapter 13 payment plan, for the majority the complete discharge of all or most debt offered by Chapter 7 is the only viable option.)  Fortunately, federal law makes special provisions for seniors.   For example, although Social Security counts as current income in a bankruptcy, it does not count as income for the purposes of the Chapter 7 means test.   For seniors who also have pensions or other income, this provision makes it easier to qualify under Chapter 7.

What do I have to lose?

Seniors are often concerned that they will lose everything, even their retirement plans, if they file for bankruptcy.  In fact, in the vast majority of cases, senior filers keep all of their personal property, including vehicles, bank accounts, etc.   Often they are able to retain their homes as well.   Moreover, qualified retirement plans (pensions, 401ks, IRAs, etc.) are exempt assets in bankruptcy, meaning that creditors cannot get to the principal.   (There are a few exceptions that most seniors would never encounter.) In addition, money from Social Security in a senior’s bank account is typically exempt not only in bankruptcy, but also from collection by creditors in general.

What will the neighbors think?

More than other clients, seniors ask me if anyone will find out about their bankruptcy.   Although bankruptcy records are public and the filing will be listed on the debtor’s credit report, the odds of someone finding about a specific case is very small.  It is highly unlikely a debtor’s friends or family would ever find out about the bankruptcy unless the debtor told them.

How can I get help?

If you are a senior in serious financial distress, please know that there is a solution to every financial problem.   A free confidential consultation with a bankruptcy attorney can help you sort out your options.  There is no need to suffer in silence.

Dan Mueller is a Philadelphia bankruptcy lawyer who helps people file Chapter 7 and Chapter 13 bankruptcy.   His firm is called Harborstone Law Group, P.L.L.C., and his website can be found at www.bankruptcylawyerpa.com. Dan is   a good friend of mine from law school at the University of South Carolina School of Law class of ’93.