Seniors have many reasons as to why they might need to file for bankruptcy. Many seniors no longer have an income or a have a limited ability to work. Seniors generally have more health problems which can be extremely expensive even though Medicare may pick up some of the costs.
Seniors are seeing their retirement benefits outside of Social Security decrease such as lower pension benefits. Many seniors don’t have any family members who are in a position to help them. All of these factors can cause seniors to get into enough financial difficulty that they have to consider filing for bankruptcy.
They do however, have some financial benefits that others do not. Some of their assets are not included as a part of the means test which can make it easier to file for Chapter 7.
Many of their retirement benefits cannot be seized by creditors and are exempt. Although this is the case, the elderly should be extra sure to consult with an experienced bankruptcy attorney before filing for bankruptcy because there are many bankruptcy and credit protection rules that can benefit seniors.
Medical Expenses
The cost of just one night in a hospital can cost tens of thousands of dollars. While Medicare may pick up 80% of the costs, that still leaves 20% left to pay which can be more than some seniors can afford.
Add in the out of pocket costs of prescription drugs, the cost of supplemental insurance premiums, the cost of multiple doctor visits, medical equipment and extended hospital stays and it’s easy to see how seniors get behind on their medical bills.
Some seniors need to have home health care and transportation costs because they can no longer drive too.
Chapter 7 and Chapter 13 both provide possible solutions. Chapter 7 can discharge all of the medical debts because medical debts are rarely secured. The problem that seniors need to review is that they will probably incur new medical bills as they get older. Chapter 7 bankruptcy only discharges the medical bills of the debtor at the time of the filing. New bills will not be discharged. Some debtors should, at least, consider waiting to file until their medical problems have hopefully stabilized.
Chapter 13 doesn’t provide that much extra help because Chapter 13 is mainly for creditors who have secured debts and want to keep their possessions. Still, paying the medical bills over a three to five year period may be an alternative.
Many patients want to keep their same doctors. Seeing that their treating doctors and care hospitals are paid over time can help make for a better doctor-patient relationship. Chapter 13 can also help seniors who have too much home equity.
Keeping the Senior’s Home
The family home is often the biggest and most important asset for seniors. Many seniors have paid off a large part of their mortgage or maybe even all of it. That’s a great position to be in because it means the senior will only have to pay the house expenses and taxes instead of the extra monthly mortgage payment. But there is a downside to home ownership or substantial home equity. Chapter 7 allows the Bankruptcy Trustee the right to sell the debtor’s assets including the house.
There are several ideas a bankruptcy lawyer can consider to help seniors keep their home. The first is that most states and the federal bankruptcy statutes have homeowner exemptions (here are Connecticut’s homestead exemptions). These exemptions may help to save some homes. Many homes, though, are worth much more than the federal exemptions. Some state exemptions may be better.
A second consideration is when a husband and wife own a home. If only the husband or only the wife has medical bills, then if the home is in both names, the Trustee may not be able to sell the home.
The third option, as mentioned, is to consider filing a Chapter 13 bankruptcy. This lets the debtor(s) pay out the medical bills over a three to five year period. This way the senior or husband and wife seniors if they file jointly can still keep their home.
Retirement Account Protection
Most retirement accounts are protected in bankruptcy. This includes many IRAs (up to over a million, two hundred thousand), 401(k)s and other legal retirement plans. This means creditors cannot seek to have the Bankruptcy Trustee collect against these plans. It is one of the great benefits of being a senior citizen.
Social Security Benefits
Social Security benefits are the major source of income for many seniors. Some seniors rely entirely on Social Security. Others have additional retirement benefits. Some seniors still work in order to make ends meet.
Social Security benefits are not part of the means test. Before filing for bankruptcy, debtors who wish to file a Chapter 7 bankruptcy have to meet a means test.
This generally means that their income should be less than the median for their state. The good news is that federal bankruptcy law does not include the senior’s Social Security benefits in this test. That means most seniors will qualify for Chapter 7. Those few who don’t qualify need to file a Chapter 13.
The big difference between Chapter 7 and Chapter 13 is that Chapter 13 forces the debtor/senior to pay the creditors some monetary amount. In Chapter 7, all of the unsecured debts such as the medical bills, will be completely discharged.
Seniors should know that while their Social Security benefits are not part of the means test, they still have to disclose the amounts they receive. Debtors who do file a Chapter 13 bankruptcy, because they want to save their home for example, may need to include their Social Security benefits in their income calculation. It depends on the jurisdictions. Many states hold that it doesn’t have to be included but it is an open question in some states. Your local bankruptcy attorney will know the answer.
Future Social Security benefits are exempt from seizure by the Bankruptcy trustee. Whether Social Security Benefits you have received are also protected can be a little trickier. Debtors should keep their Social Security benefits in a separate account, separate from other income accounts, so the Trustee can be 100% sure that none of the Social Security benefits have been co-mingled. Co-mingled accounts can cause seniors to lose already accumulated and unspent benefits.
Be First to Comment