Chapter 7 Bankruptcy: Special Considerations For Senior Citizens
Posted on: 13 March 2015
Many senior citizens rely on payments from Social Security or private pension funds to cover their expenses during retirement. Unfortunately, people on fixed incomes often struggle to pay off their debts. If you are living on a fixed income and struggling to pay your bills, bankruptcy might be a good option for you. Here are several things you must consider before making the decision to file.
Home Equity and Bankruptcy
Home equity refers to the difference between the fair market value of a property and the total amount of liens against the property. If your home is worth $200,000 and you only have $25,000 left to pay on your mortgage, then you have $175,000 in home equity. A senior citizen is more likely to have a lot of home equity than a young professional, so you must keep your home in mind when formulating your bankruptcy strategy. Many states have homestead exemptions that allow you to keep your equity, but the limits vary from state to state, so be sure to talk to a bankruptcy attorney before you file.
Medical Debt
If you incurred thousands of dollars in medical debt, you might be unable to pay all of it using your fixed income. Medical debt typically takes just a few months to discharge during a bankruptcy, but it is important to file your case at the right time. Once you file, you won't be able to file bankruptcy again for approximately eight years. If you expect to incur more medical debt, your attorney might advise you to wait to file your case so all the debt can be discharged at one time.
Nursing Homes and Assisted Living
If your spouse lives in a nursing home or assisted-living facility, you may be responsible for applying for Medicaid benefits to cover the cost of your spouse's care. Check the contract you signed to see if there is a clause about applying for benefits or otherwise handling your spouse's affairs. If you fail to apply for benefits as required, you might not be allowed to discharge the nursing home debt during a bankruptcy case. If the contract requires you to apply for Medicaid benefits on behalf of your spouse, do so as soon as possible to avoid being responsible for a high amount of debt later on.
Retirement Accounts
Many retirement accounts receive special attention during a bankruptcy case, particularly 401(k) and 403(b) plans. If you have a Roth IRA or traditional IRA, there is a limit to how much money is exempt. The amount changes every three years, so talk to your attorney about the current exemption amount. It's important to recognize that only legitimate retirement accounts are protected; if your money is in a certificate of deposit, savings account, or other savings vehicle, you might not be able to keep some of it if you file for Chapter 7 bankruptcy.
Chapter 7 Means Test
If your average gross monthly income for the previous six months exceeds a certain threshold, you will have to take a bankruptcy means test, which helps determine if you are eligible to file Chapter 7 bankruptcy. The test is a little different for senior citizens because it does not count your Social Security payments as part of your current monthly income. The same goes for SSI and Social Security disability payments. The Chapter 7 means test is complex, so don't attempt to calculate your average gross income without consulting an experienced attorney.
The decision to file for bankruptcy is not an easy one, especially for seniors who have worked hard their entire lives and find themselves struggling to make ends meet. If you are facing an overwhelming amount of debt, consult with an experienced bankruptcy attorney like Schneider Steve Atty At Law. With the right strategy, you might be able to keep the equity in your home and avoid having to part with some of your most cherished possessions.
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