For some Senior Citizens, bankruptcy may provide greatly needed debt relief after growing medical expenses or years of supporting their children. Bankruptcy experts say that filing for bankruptcy can be a useful tool for retirees seeking to protect their retirement assets, after negotiating with creditors. Unfortunately, fear of shame brought on by financial troubles, often deters many older Americans from seeking bankruptcy help earlier.
Deborah Thorne, an associate professor of sociology at Ohio University said, “People usually postpone bankruptcy for several years before filing. When finances head south, they should file right away.” Thorne who has studied bankruptcy and older Americans explained that retirees face a greater risk of financial ruin than younger individuals do. She proposed that the best strategy is to always protect assets.
401(k)’s, pensions, social security payments, qualified profit-sharing plans, and individual retirement accounts worth up to $1.245 million are all exempt from creditors during bankruptcy. This means that retirement income and savings are out of reach and protected under federal law. Protecting equity, which is the value of a property, minus the amount owed, is important for seniors. Using a homestead exemption, designed to protect the equity of a main residence in a bankruptcy, will usually keep retirees from losing their homes. Florida homeowners can take advantage of the fact that Florida does not have a limit on the equity that is exempt.
When work began to dwindle for one 66 year old retired Central Florida senior, he wanted to get his financial stability back. He quickly saw his debt situation growing larger while his income grew smaller. As a result, he declared Chapter 7 bankruptcy, allowing him to liquidate some of his assets in order to repay creditors.
“I wanted to leave money, not debt, to my grandchildren, and begin rebuilding my life,” the Orlando resident said. Overcoming the harsh stigma of bankruptcy was the most difficult part for the senior, but filing bankruptcy was the chance he needed to start over financially.
Certain debts such as child support, alimony, federal tax bills less than three years old and student loans are usually not discharged with a bankruptcy.
A means test can assist with deciding which type of bankruptcy best fits a particular situation. According to specialists, those with higher income fair best with Chapter 13 bankruptcy, which allows for a repayment plan. John Pottow, a professor at the University of Michigan Law School and a bankruptcy specialist said, “It lasts for a minimum of five years, and it’s a budget that’s created to pay back creditors.” For those with lower income or assets, Chapter 7 works best.
It is recommended for people to negotiate with the creditors before filing for bankruptcy. Consumers should try contacting the credit card companies and asking for reduced interest on outstanding balances. Medical debt can also be negotiated. In some cases, hospitals have even reduced balances by half.
Another strategy is so refuse to pay the outstanding debt. If a retiree has little else outside their retirement fund, the creditors will likely not collect anything, even if it went to court, which can be called “judgment-proof.” Credit scores will be affected by filing for bankruptcy and a bankruptcy can stay on a credit report for up to 10 years, but credit can be restored. Those who declare bankruptcy are required to take credit and debtor counseling classes, which will help with rebuilding their finances.
After declaring bankruptcy, the Central Florida senior’s credit score dropped 200 points. Since then, he has begun rebuilding his credit by leasing a car. “Now it’s slowly coming back,” he said.
If you are in a financial crisis and are considering filing bankruptcy, contact an experienced Miami bankruptcy attorney who can advise you of all of your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade & Garcia, P.A. has been helping people from all walks of life build a better tomorrow. Our attorneys’ help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade & Garcia website at www.miamibankruptcy.com.