Filing for bankruptcy is a serious decision for anyone, but senior citizens have a lot to consider. At a time of life when security is important, the prospect of bankruptcy may be disconcerting. Is filing for bankruptcy the right move for senior citizens? It depends on their financial circumstances. The truth is, bankruptcy may be the ideal solution for some seniors who are burdened with debt – but it is not for everyone.
Below we will discuss three facts that seniors should understand about their bankruptcy options. We do recommend that any senior citizen who is considering bankruptcy should call a bankruptcy attorney for professional advice.
1. Bankruptcy For Those with Dischargeable Debt
Senior citizens with financial problems related to non-dischargeable debts will not get relief from the bankruptcy process, as the proceeding will not erase the debt. However, bankruptcy can assist with paying off the non-dischargeable debts, as it frees up finances to put towards those debts. Seniors overwhelmed by credit card debt can have those debts discharged, and the money typically allocated to pay those bills can be used towards other obligations.
2. Bankruptcy When You Have “Judgement Proof” Assets
Often, a senior’s home and primary vehicle are protected from the bankruptcy proceedings – that is, a creditor cannot typically win a judgment in their favor and compel you to sell those assets (unless the debt judgment is directly related to that specific asset.) This protection also applies to Social Security income. To illustrate, a mortgage lender has the right to foreclose on your home if you are not making your monthly payment. However, a credit card company does not have the right to force you to sell your house to pay your credit card debt. Filing bankruptcy does have a benefit that may seem enticing – once you file, all harassment and collection calls from bill collectors must cease. However, if it is the only benefit to filing for bankruptcy, this peace and quiet might not be worth the financial implications of having bankruptcy on your record. A bankruptcy attorney can help you determine if your overall situation merits filing.
3. Bankruptcy Only if Your Home is Protected
Home equity is defined as the total value of a homeowner’s interest in their home. Equity is the property’s current market value minus any liens (including a mortgage) attached to that property. For example, if the home is worth $325,000 and the homeowner still owes $100,000 on their mortgage, their equity is $225,000. Home equity may represent a major concern for many senior citizens thinking about bankruptcy. Many seniors hold more equity in their homes than younger individuals, primarily because of the amount of time they have been paying down their mortgage.
If a senior has paid off their home or is close to having full equity, filing for bankruptcy may place the home at risk. If this is the case, you’ll want to consider another option. While bankruptcy does provide protections for the home and equity, there are limits to those protection. Speak to a bankruptcy attorney to understand if the available protections will prevent you from losing the home you worked so hard to own.
Although bankruptcy offers relief for people of all ages, seniors facing financial struggles may be especially vulnerable – and therefore, should proceed with caution. Older people may not be able to return to work and recoup what they may lose, so they should carefully consider the pros and cons of filing. The best strategy before making any decisions is to schedule a consultation with an experienced Sarasota bankruptcy attorney to discuss your assets, debts, and other financial issues and specifics that will affect your overall situation.
The law offices of Richard V. Ellis delivers decades of expertise to help Sarasota residents in making the best decisions regarding bankruptcy and their finance future.