Last week we discussed some reasons why more Florida seniors, and retirees across the nation, are seeking out bankruptcy protection. Medical expenses, taxes and credit card debt continue to rise, but retirees are not getting any extra income to keep up with their monthly payments. More seniors are also carrying a mortgage balance into retirement. A mortgage payment can often end up consuming a majority of the household’s income.
As a result of increased expenses, many retirees have turned to using credit cards. Unfortunately, they only dig themselves into more debt. In a recent Michigan survey, elder Americans were reported to carry 50% more credit-card debt than younger individuals. For many seniors, bankruptcy is a valid solution in order to finally make ends meet again.
Chapter 7 and Chapter 13 offer different benefits for Florida retirees considering bankruptcy protection. One of the biggest concerns for seniors is that retirement savings will be wiped clean if they file bankruptcy. However, this is not the case. Social security and retirement funds (up to about $1.1 million) are exempt from creditors. Retirees will still have the steady income from their retirement accounts and social security.
Another worry is that seniors will lose their homes. This is not necessarily the case either. In Chapter 7 bankruptcy, unsecured debts are discharged; meaning credit card debt and medical bills can be entirely wiped out. Secured debts, such as a home or car can be reaffirmed with the lenders, and the individual would be able to keep their car or home as long as they continue to make the agreed upon payments. With the credit card debt and medical bills discharged, it becomes much easier for individuals to handle their car and house payments.
Chapter 13 typically devises a special repayment plan for individuals regarding all of their debts. In many cases, homes and cars can also be kept after bankruptcy when lenders and borrowers agree to certain payment methods.
Seniors considering bankruptcy also fear that their credit score will be impacted negatively. Credit scores do drop after bankruptcy, but good credit is mostly important for buying a new vehicle or purchasing a home. Most retirees are in a position where they most likely won’t be making any big purchases like that.
Although some may be ashamed to file bankruptcy because of the negative stigma it carries in society, individuals should be focusing on the positive. In some cases, filing Chapter 7 or Chapter 13 can be the best solution for Florida seniors who are in need of a second chance. Individuals have the opportunity to feel comfortable with their monthly payments, while still keeping their home and vehicle.
USA Today: “Filing bankruptcy in retirement may not be such a bad idea,” Cindy Perman, 13 Dec. 2010
Chicago Sun Times: “Many seniors drowning in bills, fear things will get worse,” 12 Dec. 2010