When is bankruptcy a good option?

What kinds of accounts are protected by a bankruptcy filling?

Five Paths to Bankruptcy in Your Golden Years

More and more people are filing bankruptcy – over a million a year – and a growing proportion of those people are retirees and seniors.  This is an especially heartbreaking statistic because seniors have worked their entire lives and the plan is always to retire to a care-free final chapter where they can enjoy the fruits of their lifelong labors without problems.

So why are so many seniors filing for bankruptcy in what should be their reward?  There are five main pathways that lead seniors to bankruptcy – and five lessons we can all learn before we ourselves retire.

1.            Healthcare

One of the main reasons seniors are forced to declare bankruptcy are unexpected healthcare costs.  Medicaid only covers about 80% of all healthcare costs, making what’s known as “gap insurance” essential – but not all seniors invest in this insurance.  Many people enter their old age without long-term care insurance either, meaning that a serious illness can wipe out their savings in no time.

2.            Undersaving

We’re all living longer, with women in the USA creeping towards an average lifespan of 80 years.  Not clearly understanding how much their retirement will cost, and not preparing for inflation and the rising costs of living, leaves many senior running out of money at a time in their lives where working is no longer an option.

3.            Student Loans

$36 billion in student loan debt is held by people over 50.  This can usually be traced back to midlife career changes or earning advanced degrees after a layoff prior to retirement.  Many seniors also borrow in order to send their children or grandchildren to school, leaving them on the hook for someone else’s education.

4.            Scams

As we age, we lose some of our ability to judge people and situations, and can become confused.  Plus, seniors often find themselves in unfamiliar scenarios after a lifetime spent working, and often new advances in technology are confusing for them.  When combined, these reasons make them vulnerable to many scams that cost seniors almost $3 billion annually.

5.            Predatory Lending

Predatory lending should probably be categorized under “scams” but is, in fact, perfectly legal.  Seniors who find themselves in declining financial situations may grasp at straws to keep the lights on, often agreeing to large balloon payments, adjustable rates, and other legal but unethical practices.  A properly planned retirement is essential to avoid these temptations.

Bankruptcy: What You Really Need to Know

Bankruptcy serves a distinct and important purpose in the modern world, and it’s slowly shedding old negative associations as more and more people come to understand how it works and why it exists.  In fact, over a million people a year file for bankruptcy in the United States, seeking the protection of the court while they put their affairs in order.

The fact that so many people have chosen to pursue bankruptcy as a final solution to their financial problems should not, however, give the impression that bankruptcy is no big deal or can be a casual solution to reckless spending.  Bankruptcy is complex and has a long-lasting effect on your life; it should never be entered into lightly.  Here’s what you need to know:

• There are two main kinds of bankruptcy: Chapter 7 has the ability to erase your debts completely, and it removes you from contracts with creditors.  Chapter 13 involves a five-year payment plan before your debts are completely removed.  Each has specific advantages and disadvantages – know them before you file.
• Don’t hesitate.  While bankruptcy shouldn’t be an option while you still have resources, you also shouldn’t wait until disaster has already struck.
• Don’t commit fraud.  If you think taking cash advances on your credit cards or transferring assets into a relative’s name just before declaring bankruptcy won’t be noticed by the courts – think again.
• Hire an attorney.  An attorney who specializes in bankruptcy law is essential – don’t try to go it alone.  Bankruptcy law is complex and your finances are complex.  Whatever you think, you need a qualified expert on your side.

 

Bankruptcy can save your retirement funds, your home, and other assets while giving your creditors a chance to salvage something from the loans made to you – this is an essential aspect of the modern world and shouldn’t be treated lightly, for any reason.  The better prepared you are for bankruptcy, the better the process will serve you.

Bankruptcy is Saving the World

For a lot of people, the term “bankruptcy” refers to a trick: People rack up immense debts they can’t hope to pay back, and when justice begins to close in on them they can jump in the escape pod marked Bankruptcy and wriggle out of the consequences, only to repeat the cycle.  This, of course, isn’t true, and as bankruptcy rates skyrocket during the worldwide economic slowdown we’ve been experiencing, more and more people are realizing that bankruptcy serves a legitimate purpose in the world.  To put it in dramatic terms: Bankruptcy allows civilization to exist, because it gives us rules and structure for dealing with financial ruin.

The Bad Old Days

In the past, an inability to pay bills was dealt with via a destructive and unrealistic hostility.  People were even thrown into jail because they failed to pay their bills, and even where debtor’s prison didn’t exist, there were usually endless rounds of punishments that sank people into a hole they would never crawl out of.  While that might seem like justice to some folks who have smugly never missed a payment in their lives, the fact is it was totally harmful to society: The debtor had no chance not only of paying off that specific debt; they had no chance to pay off other debts either.  Punishment therefore spread like a cancer to all the interested parties.

The Modern Method

In contrast, bankruptcy today allows for an orderly and fair review of the debtor’s assets and debts, and as many debts as possible are made whole.  Lenders are able to negotiate to get at least some minimum amount of their principal back, and the debtor is allowed to rebuild their lives and their finances not only after their debts are discharged, but during the process as well – which benefits everyone.

More and more people are realizing this – more than a million people filed for bankruptcy protections under either Chapter 7 or Chapter 13 in 2012 and 2013.  The two main types of bankruptcy differ slightly in the details of how they work, and a professional should be consulted before making any decisions involving bankruptcy.  But if you are at a point where paying your debts has become impossible, it’s a better choice to alert your creditors and work with them under a legal structure than to deny what’s happening and let chaos rule the day – as it surely will if you don’t file.