Seniors and bankruptcy: Making the leap
Editor’s note: The following is a blog entry for “Sense and Centsibility,” which appears on the Echo Press website under Areavoices. It’s provided by Lutheran Social Services (LSS) and was written by Barbara Miller.
I’ve been a bankruptcy counselor with LSS for many years now and it’s been a perfect fit with my legal background. My counseling experience has shown that people of all ages file bankruptcy, from their early 20s right into their 80s. Just as folks of different ages find the need for bankruptcy protection, just as varied are the reasons they file. In all these years, there has been only a small handful of clients that I felt carelessly accumulated debt knowing they could wipe it out in bankruptcy if they wanted.
But the cases I find most troubling are when elderly clients face crushing debt in their golden years. For instance, I spoke with a lovely couple in their 80s just the other day. They were very open about their financial problems, and admitted they were caused by overspending and mismanaging their money. His main concern was making sure she would not be saddled with huge debts if he was to pass away first. If that happened, she would be forced to live on a mere $1,200 a month in Social Security benefits because his pension payments end when he dies. They also have an annuity but it has drained quickly to keep up with their enormous credit card payments. Filing bankruptcy will help them get rid of the credit cards, which could in turn preserve that annuity a bit longer.
Even though they fully understand the need to file bankruptcy, it’s the last thing they want to do. Like many folks, and particularly older consumers, they feel obligated to pay their bills.
Just a couple days after counseling this couple I saw an article called “Bankruptcy and the Elderly” at www.bankruptcylawnetwork.com. The author, Jonathan who is a bankruptcy attorney, did a beautiful job of summarizing the benefits and downsides of filing bankruptcy for older consumers. This blog post summarizes his article.
Somehow, I think it was intentional that he listed the bad side of bankruptcy first. As a reader, it made the good reasons he listed seem much more powerful.
• Filing bankruptcy costs money. After all, the attorney must be paid and the court wants its filing fees.
• It also sets a bad example for other family members, especially the couple’s children. After teaching their family to always pay their bills, now the couple has failed to practice what they preached all these years.
• It may devastate an excellent credit score. Many folks decide to file bankruptcy when they’re current on all payments but know they can’t keep up the battle. Filing bankruptcy at this point will definitely sink a healthy credit score.
• But the worst seems to be the feeling that filing bankruptcy is just plain humiliating. Understandably, this is the biggest hurdle for elderly consumers to get over. From what I’ve been told, it feels like failure. And their family, neighbors, and perhaps the entire community will find out they can’t handle their financial obligations.
Jonathan then goes on to point out four “of the many advantages to filing a bankruptcy.”
• Bankruptcy will stop the collection calls and letters if you’ve fallen behind. Clients often confide in me just how stressful those calls and letters can be. Well, bankruptcy may be able to stop them forever! Don’t let owing money negatively affect your health and sleep.
• Bankruptcy will eventually improve damaged credit scores. If your score has suffered because you’ve been unable to make regular debt payments, bankruptcy will position you to rebuild your score over time to a healthy number.
• By filing bankruptcy, you are taking responsibility for your situation and working to resolve your financial problems. On the other hand, burying your head and ignoring your finances only prolongs the struggling!
• According to Jonathan, filing bankruptcy can be one of the best forms of estate planning available. Depending on which state you live in, your home is entitled to an exemption of its equity, or at least a portion of it. An exemption means it’s protected from creditors you owe. Here in Minnesota, that exemption exceeds $300,000.
In addition, if a creditor sues and gets a judgment against you, generally it cannot force you to sell your home to pay off the debt. But if you owe large credit card bills when you die, rather than going to your family, your home may have to be sold to cover those debts.
If you’re straining under the weight of too much debt, talk with an experienced bankruptcy attorney for an objective assessment of your financial situation. While emotions and feelings are important, don’t let them keep you mired in debt.