Seniors and Bankruptcy
As of the first quarter of 2026, the average American between the ages of 61-79 carries $92,619 of debt, according to Experian credit rreport data. With more than 17 million older Americans — about one in three — living at or below 200 percent of the poverty line, no wonder seniors are seeking debt relief. When bills don’t get paid, debt collectors call and send letters. Without the funds to make the stress stop, seniors may find themselves asking, “Do I need to file bankruptcy?”
Like with all serious life decisions, senior citizens should try to learn all of their options before deciding to file bankruptcy. Investigate what bankruptcy can do for you and what bankruptcy cannot do. Learn more about bankruptcy law, including the chapters of bankruptcy, the court appearance requirements and the potential cost. Finally, find out why bankruptcy may not be necessary for older Americans receiving legally protected incomes.
The Chapters of Bankruptcy
Chatper 7
Chatper 7 or “straight” bankruptcy is normally what people think of when they think of bankruptcy. In Chatper 7 bankruptcy, your unsecured consumer debts (credit card bills, medical bills, etc.) are “discharged” or wiped out. Sometimes this is referred to as a “fresh start”.
When Chatper 7 is filed, a bankruptcy trustee is appointed. Their job is to look at what is filed and at a very brief hearing ask you questions to make sure the law is complied with and there are no “nonexempt” assets that could be sold and the money used to pay creditors. Every state has laws commonly referred to as “exemptions” dictating what assets a person is allowed to keep when they file a bankruptcy. The vast majority of Chatper 7 cases are what is called “no asset” cases where the “debtor” or person filing the bankruptcy does not have any assets above the exemption limits.
In order to qualify for Chatper 7, a person’s income must generally be under a certain amount, or what is called under a “median income” for the state where they live. Persons with income over this level may not qualify for a Chatper 7 bankruptcy. They may file another type of bankruptcy if they choose Chapter 13 bankruptcy. Many senior citizens and elderly persons with limited incomes fall within the median income limits.
Chapter 13
In Chapter 13 bankruptcy, the debtor repays all or some of their debts over a period of three to five years. Payments are made to a Chapter 13 trustee who then distributes that money to creditors according to what is called a “Chapter 13 Plan.” Chapter 13 bankruptcies are typically more expensive and involve being under the administration of the trustee for at least three years. Chapter 13 is normally filed for certain specific reasons. The major reasons are listed below.
- The debtor’s income is too high to file a Chatper 7.
- The debtor has assets above the exemption limits. To avoid a Chatper 7 trustee taking these assets and selling them to pay creditors, (like a home worth over the homestead exemption or a valuable car that is owned outright). In Chapter 13, a debtor pays the creditors through the Chapter 13 plan an amount equal to what the creditor would have received in a Chatper 7 bankruptcy if the asset had been sold. E.G. A debtor owing 50,000 dollars in credit card debt who also had an excess equity of $100,000 over the homestead exemption for his state would pay off this debt through the Chapter 13 payments. These payments would be around 1000 dollars a month. (Chapter 13 payments do not just pay off debt. A portion of this payment goes toward attorney fees and the trustee’s commission.)
- The debtor has defaulted mortgage payments or past due property taxes. Foreclosure is threatened and often imminent. The past due mortgage payments are paid over the three to five years through the Chapter 13 Plan. Regular mortgage payments are resumed and must also be made during this time.
- The debtor has past due income taxes or child support debt. Often the debtor’s wages are being garnished.
- A threatened automobile repossession. Chapter 13 can stop a car repossession and allow a person to pay for his car over a longer period through the Chapter 13 plan. Depending on how long the person owned the car, the debtor may only have to pay what the car is worth and not what is owed.
The requirements of appearing in court when you file a bankruptcy
Typically, a person filing a bankruptcy will have to go to only one brief court appearance. It is called a “First Meeting of Creditors” even though creditors rarely appear at this hearing. It is typically just the debtor, his or her attorney and the trustee who asks questions. A judge is not present at this hearing. This hearing may also be referred to as a “341(a) Meeting” after the code section in the Bankruptcy code that requires the hearing.
The Cost of Bankruptcy
A Chatper 7 requires a court filing fee. The federal courts set this amount and change it from time to time, so the figure to rely on is the current one published on the bankruptcy court fee schedule.
On top of the filing fee, attorneys charge their own fee. What they charge varies by attorney and by where you live, and for a Chatper 7 it is usually required up front.
Chapter 13 bankruptcies also have a filing fee. Attorney fees for Chapter 13 are typically much higher than the fees for a Chatper 7, but most of these fees can usually be paid through the Chapter 13 plan rather than before filing.
Why Bankruptcy May Not be Necessary for Senior Citizens
There are many reasons why a senior citizen would not want to file a bankruptcy.
Most retirement incomes are already protected by federal law
Any consideration of bankruptcy by a senior should start with an understanding that seniors’ retirement incomes, like social security, pensions, disability, VA benefits etc, are protected by different federal laws. Concern about losing legally protected retirement income to garnishment resulingt from a judgment for unpaid consumer debt should not be a reason to file a bankruptcy.
Nonexempt assets
A senior citizen might not want to file a Chatper 7 bankruptcy if he or she is buying or owns a home that has equity over and above the homestead exemption in the state where he or she lives. “Homestead exemption” means the amount of equity a person is allowed to have in a home that is protected by law from creditors. For example, if $100,000 is owed on the home and it is worth $250,000 the person has an equity of $150,000. If the homestead exemption for his state is $50,000 then there is $100,000 in equity over the “homestead exemption," the excess equity is not protected. If Chatper 7 bankruptcy is filed a trustee would sell the person’s home, pay the mortgage, then pay the debtor his “homestead exemption” of $50,000. The balance would be used to pay creditors in the bankruptcy and if any money is left over pay that to the debtor as excess proceeds. Most senior citizens would not want a Chatper 7 trustee selling their home. A senior might also have personal property that a trustee could take and sell, e.g. a car that is worth too much. These are some reasons, among others, why a Chatper 7 would not be a good idea for a senior citizen
When Senior Citizens Might Need Bankruptcy
There are situations when a senior citizen does have a valid need for a bankruptcy filing. Perhaps a mortgage arrearage needs to be cured so a home can be kept. A complicated tax situation may be able to be sorted through a bankruptcy fililng. Overpayment debts owed to the federal government can often be discharged through a bankruptcy filing, sparing the filer the unfortunate experience of having their federal benefits offset.
Most bankruptcy attorneys provide free consultations. As with all things in life, it is good to advocate for yourself by asking questions and getting as much information as possible about your options.