201901.30
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Should I File For Bankruptcy When Retired Or On A Fixed Income

We previously wrote a blog post about whether one should consider withdrawing money from their retirement accounts to help pay off their credit card balances or other debts. In that blog post, we looked at the questions that Americans who are either retired or on a fixed income evaluate when deciding whether or not to file for bankruptcy. Recently, the New York Times highlighted a new study which showed that an increased number of retired debtors are filing for bankruptcy. According to the study, the increase in filing is due to a “three-decade shift of financial risk from government and employers to individuals, who are bearing an ever-greater responsibility for their own financial well-being as the social safety net shrinks.”

The new study was published by the Consumer Bankruptcy Project and it finds that “the rate of people 65 and older filing for bankruptcy is three times what it was in 1991.” This increase in the number of bankruptcy filings by senior citizens cannot be explained simply from the aging of the Baby Boom generation. They argue that the shift in bankruptcy filings is more due to a failing of the social safety net than anything else. The cost of living (e.g. rent, food, medicine, etc.) has been going up steadily, but income for retired debtors has only increased marginally. Many debtors must often choose between paying their credit cards bills or paying for necessities like food and medicine. Debtors who are retired or on a fixed income often have no choice but to rely on credit cards to cover their shortfall of income to cover necessary expenses. The increased reliance on credit cards, in turn, can lead to an increase in bankruptcy filings.

Back in 2015, the New York Times put out a special section on retirement and finances. In that section, it is pointed out that when seniors get into financial trouble, they often avoid asking for help or seeking out advice. Today, as shown in the new study, it is easier than ever for retired debtors to fall behind on their debts. By affording protection from creditors, the Bankruptcy Court has become a part of America’s social safety net.

The Bankruptcy Code and New York State law both protect most retirement assets. Since the vast majority of retirement assets are protected, retired debtors should avoid cashing in their retirement assets to pay off their existing debts. The assets are intended to provide needed income to pay the cost of living expenses and not pay creditors or old credit card debt. Squandering these assets solely to pay creditors is contrary to public policy. Most retirement assets like pensions, IRA, 401(k)s and other qualified accounts are exempt from the reach of creditors. Similarly, the money invested in whole life insurance policies, is fully protected under New York State law and exempt up to certain limits under the Federal Bankruptcy Code.

A bankruptcy filing can discharge debts and protect assets from the reach of creditors while providing the debtor with a fresh start. If the debtor qualifies, a chapter 7 bankruptcy can eliminate most debts and protect the assets that they have saved for retirement. If a chapter 7 bankruptcy is not an option, a chapter 13 bankruptcy may offer the debtor a 5-year payment plan to repay outstanding debt.

Too often we have clients come to our office that are not properly budgeting money for food or medical expenses. Retired debtors should not have to skip meals or stretch medication in order to make payments on their debts. The new study by the Consumer Bankruptcy Project finds that while most retired debtors rely on Medicare for medical coverage, there are “gaps in coverage, high premiums and requirements that patients shoulder some costs” that can cause them to get bogged down in medical debt. Much like credit card debt, medical debt is dischargeable in bankruptcy.

If you are struggling to pay your bills and want to know your legal options, please contact the Law Offices of David I. Pankin, P.C. at 888-529-9600 or by using our easy online contact form. David I. Pankin is Long Island bankruptcy lawyer with offices in NYC, Brooklyn and Melville. We offer a free consultation and convenient payment plans.


Further reading:

Protect Your Retirement Assets By Filing For Bankruptcy

https://www.nytimes.com/2018/08/05/business/bankruptcy-older-americans.html

http://www.nytimes.com/2015/05/14/business/retirementspecial/bankruptcy-can-help-seniors-protect-assets.html

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3226574