I’m Retired and in Debt: Does Bankruptcy Make Sense?

A comfortable and peaceful retirement is part of the “American Dream,” but an increasing number of seniors in the U.S. are finding themselves burdened with too much debt, whether from medical bills or simply several years of unwise financial decisions.  This is leading to the question: does bankruptcy in retirement make sense? 

There are some important issues to look at if you are at a retirement age and considering bankruptcy—issues that are unique to you due to your retirement plans and age.  First of all, it is important to know that your Social Security wages cannot be garnished, whether you file for bankruptcy or not.  However, many creditors will garnish a bank account, which means that if you keep your Social Security wages in your bank account, along with any other money earned, a creditor isn’t likely to know how much of that account’s balance is from Social Security wages.  Therefore, keeping your Social Security wages in a separate account is crucial to maintaining this protection. 

However, if you have a large pension, you will be unlikely to qualify for Chapter 7 bankruptcy.  This means that you will be stuck with filing Chapter 13, which requires you to pay back a certain amount each month.  Since many seniors are on a very set income and often lack the extra money each month to pay such payments, Chapter 13 might not be the best option if it will make it difficult for them to take care of their basic, day-to-day living expenses AND make these payments on a set income. 

If you have an IRA with a significant amount of money, it is important to check with a bankruptcy attorney to see how that account would be affected after filing for bankruptcy.  Since bankruptcy laws and exemptions vary within each state, you might be advised that you are better off not filing or risk losing a large portion of your IRA.  In Florida, most cases allow you to keep 100% of your IRA or 401k regardless of the amount.