Top Reasons Why the Elderly Don’t Want to File Bankruptcy (But Should)

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Being elderly, living on a fixed income, and dealing with mounting debt can be frightening.  Although retirement funds, pensions and social security checks are almost completely protected from creditors looking to recoup their money, they can still harass you for payment and make life difficult.

 

Here are some of the most common reasons elderly people give for avoiding bankruptcy and why those reasons are invalid. 

It’s embarrassing. 

We’ve all been taught to pay our debts and not shirk our obligations.  However, in a predatory lending environment like the one we’ve seen in this country over the past 10 years, it’s far too easy for people to be taken advantage of by unscrupulous lenders who pile on so much interest that it’s almost impossible to repay the debt.  The embarrassment should be on their part—not the victim of their predatory lending. 

It costs too much money. 

Actually, many bankruptcy attorneys will take payments and in consideration of the amount bankruptcy saves you through discharged debts, it costs less than doing nothing at all. 

It ruins your credit. 

In many cases, particularly Chapter 7 bankruptcy, filing for bankruptcy can actually raise your credit score—particularly if you’ve been behind on payments for a while, or are more than 90 days late on several accounts.  If your credit score is indeed lowered, a few months of paying your now-reduced and affordable payments on time will quickly raise it. 

It sets a bad example for the children.

Taking responsibility and admitting that you are in over your head is the best example you can set, and that’s what bankruptcy allows.  If you pass away with all that debt in your name, your estate will not go to your children and family—it will go to creditors.  With that in mind, which approach do you think your family would most benefit from?  The answer, of course, is bankruptcy.  

What will happen to my car and car loan if I file bankruptcy?

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.

 

5 Myths About Bankruptcy You Should Know

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Despite the plethora of information available online, there are still bankruptcy myths circulating that are just that—myths.  With something as important as bankruptcy, it’s important to understand the facts and learn how to distinguish them from fiction.  

1.       Everyone will know I’ve filed.

While it is true that bankruptcy is a public record and is searchable as such, unless you are a high-profile individual, it is unlikely that anyone in your circles will know that you’ve filed for bankruptcy.  The number of people who file each month in any given city or area often makes it impossible for the media to focus on printing names; although in some smaller communities, the newspapers still do this.

2.       If I file Chapter 7, I don’t have to pay back any of my debts.

This is certainly a nice thought but it’s a myth, nonetheless.  Certain debts such as alimony, child support, student loans and fines for criminal acts must still be paid, even after filing for Chapter 7.

3.       If I file bankruptcy, I’ll lose my house, car, possessions, etc.

It is important to know that each state provides exemptions to bankruptcy filers, allowing them to keep a considerable amount of their property—up to a particular value.  A bankruptcy attorney will be able to explain in detail what you may or may not lose in the process of filing. 

4.       I can kiss credit goodbye if I file. 

Although for 2-4 years, you might only qualify for subprime loans, there are still many lenders who are more than happy to provide credit to people who have filed for bankruptcy—even Chapter 7 bankruptcy. 

5.       If my husband/wife files, that means I have to file, too. 

This situation is highly dependent on whether both spouses are liable for the debt.  If both names are on most debt, then yes, it would make more sense for both spouses to file.  However, if only one spouse’s name is on a considerable amount of debt, that spouse can file, leaving the other spouse’s credit unscathed.  

Can Bankruptcy Help My Tax Debts?

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While some people who file bankruptcy are burdened with credit card debt, some are burdened with debt to Uncle Sam for past due income taxes.  Tax debt can be included in a bankruptcy, but there are rules and in most cases, you will have to pay your taxes.  To understand the difference in the way tax debt can be discharged, you have to understand two most common types of bankruptcies.  Chapter 7 wipes away all of your debt and you are no longer obligated to pay it.  Chapter 13 reorganizes your debt and puts you on a plan to repay your debts.  If income tax debt is included in a Chapter 13 payment plan, it is considered a priority debt and must be paid before other debts. 

Some people have misconceptions about tax debt and bankruptcy.  Here are three common myths.

1. Myth: Income tax debt is never discharged.  Fact: If you file a Chapter 7 and you have tax debt that is more than three years old and your taxes were filed on time, in some cases that debt can be discharged. 
2. Myth: Interest and penalties will continue to accrue if I put my income tax debt in a Chapter 13 payment plan.  Fact: You will have to pay all of the interest and penalties up until the time you filed your Chapter 13 but you will not be assessed any additional fees after you file.  The accrued interest and penalties will be included in your bankruptcy. 
3. Myth: Filing bankruptcy will wipe out any liens from the IRS.  Fact: If the tax lien is not secured, it will become a priority debt and it must be paid in a Chapter 13.  It is not dischargeable in a Chapter 7.  If the IRS has filed a secured claim, it cannot be discharged.

Most other types of taxes do not qualify for discharge if you file bankruptcy.  These include estate taxes, gift taxes, sales taxes or fuel taxes. 

Tax law is very complicated and sometimes there are exceptions to what can be discharged that are unique to the client.  Even if you cannot include you tax debt in your bankruptcy plan, getting relief from your other debts will help you pay your taxes.  You will not know what you can do about your tax debt until you consult with a bankruptcy attorney.  We have helped hundreds of clients determine how they can handle their tax debt.