Bankruptcy and The Elderly

Bankruptcy attorneys see this all the time: an elderly couple comes to talk about their debts. Inundated by credit cards, medical expenses, increasing cost of living and surviving on a fixed income, they see no help in sight. But, their retirement can’t be garnished, and Social Security is almost completely protected from creditors.

So, what possible benefit can there be to an elderly couple to file bankruptcy? Here are three rationales for not filing heard frequently:

1.        It’s humiliating. We were all taught to pay our debts; and no one wants his or her neighbors to know that they can’t handle their economic obligations. But: With over 1 million Americans filing bankruptcy every year, the social stigma to filing has long since evaporated.  Unless you’re famous, your neighbors will not know if you file a bankruptcy

2.        It costs money. The attorney and the court have to be paid. But: The cost of filing is reasonable.  The filing fee is only $306 (increasing to $335 on June 1^st), and attorney fees vary according to the complexity of the case.  The total cost is often less than the amount you are paying in credit card payments every month. 

3.        It “ruins” a perfectly good credit score. But: If you are behind on your payments, your credit is probably already suffering. Also, see #2 below.

Those may be good reasons not to file; but the benefits of filing far outweigh the detriment. Four of the many advantages to filing a bankruptcy:

1.        It stops the collection calls and letters. Many of my clients of all ages are embarrassed to answer the phone and afraid of picking up their mail. Threatening letters and calls are no fun at any age, and can be particularly upsetting to the elderly.

2.        It will, ultimately, improve your credit score. As unlikely as it sounds, creditors are anxious to loan money to folks immediately after the filing of a bankruptcy.  Creditors know that another bankruptcy cannot be filed for 8 years, and since all other debts are discharged, they will be first in line for repayment.

3.        It teaches responsibility. Facing your economic problems and doing something about them is the responsible thing to do.

4.        It is one of the best forms of estate planning there is. A bankruptcy will discharge most of your debts, allowing you to leave a debt free estate. Your assets, including your home, can be passed to your heirs without fear of a forced sale to pay your unpaid obligations. 

The number of the elderly filing bankruptcy is increasing, even as the total number of bankruptcies is declining. Those over 55 (not that 55 is elderly) now account for nearly 25% of all bankruptcies filed. All in all, bankruptcy can be a wonderful tool to free you to enjoy the rest of your life.

Today's guest blog is courtesy of  Richard J. Welt at McFerran & Burns, P.S.

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