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Retired and Looking For Debt Relief?

Seniors and Bankruptcy

seniors and bankruptcy concerns

Seniors are retiring with record levels of credit card, medical and other unsecured bills. With incomes within 200 percent of the poverty line for nearly half of these people, 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 about more about bankruptcy law, including the chapters of bankruptcy, the court appearance requirements and the potential cost potential cost. Finally, find out why bankruptcy may not be necessary for older Americans with protected income.

The Chapters of Bankruptcy

Chapter 7

Chapter 7 or “straight” bankruptcy is normally what people think of when they think of bankruptcy. In Chapter 7 bankruptcy, your unsecured debts (credit card bills, medical bills, etc.) are “discharged” or wiped out. Sometimes this is referred to as a "fresh start".

When Chapter 7 is filed, a bankruptcy trustee is appointed. His 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 Chapter 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 chapter 7, a person’s income must be under a certain amount, or what is called under a “median income” for the state where they live. Persons receiving an income over this level do not qualify for a chapter 7 bankruptcy. They may file another type of bankruptcy if they chose chapter 13 bankrukptcy. Many seniors 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 his 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.

  1. The debtor's income is too high to file a Chapter 7. 
  2. The debtor has assets above the exemption limits. To avoid a Chapter 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 Chapter 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.)  
  3. 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.
  4. The debtor has past due income taxes or child support debt. Often the debtor's wages are being garnished
  5. 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

bankruptcy hearingTypically, 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 chapter 7 will require a court filing fee of $335. Attorneys typically charge fees of at least $1000. These fees are usually required up front. Chapter 13 fees are considerably higher, often reaching $5000 but often, most of these fees can be paid through the chapter 13 plan.

Why Bankruptcy May Not Be Necessary For Senior Citizens

There are many reasons why a senior citizen would not want to file a bankruptcy.

Retirement Income is 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. Therefore, because their income is protected from debt collection, seniors do not need to worry about losing any of their monthly income to debt collector garnishment. Concern about losing monthly retirement income to garnishment by a debt collector should not be a reason to file a bankruptcy.

Nonexempt Assets

A senior citizen might not want to file a Chapter 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.” That equity is not protected. If Chapter 7 bankruptcy is filed a trustee would sell the person’s home, pay the mortgage, then 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 seniors would not want a chapter 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 chapter 7 would not be a good idea for a senior citizen.

A Home With Equity Over the Exemption

What if you do own a home with equity over the homestead exemption? Unsecured creditors like credit cards, medical creditors, and loan companies can sue you and and get a judgment for debts that are not paid. With a judgment, a creditor can put a lien against your home. Some senior citizens worry that a judgment lien will soon be followed by a foreclosure.

Even if a person has equity in a home over the state’s homestead exemption, the judgment creditor will almost never take steps to foreclose on a person’s home. There are many reasons why this practice is extraordinarily uncommon. If there is a mortgage, the lender has to be paid off first. And then, a homestead exemption will need to be paid to the debtor. The process is expensive and very complicated. Any work spent pursuing this option could be foiled by a bankruptcy filing. Finally, if there is little to no equity in the home, a forced sale of the home would end up costing the judgment creditor more than what he could make from its sale.

In many states, a judgment automatically becomes a lien on a person’s real property, their home. This typically applies only to a home built on a foundation on land, and not a mobile home in a park. Senior citizens are often worried and scared about a judgment lien on their home, but as explained above, no actions are taken against the home. The creditors will let the judgment sit there as a lien, hoping they eventually get paid when the home is sold.

Unsecured Creditors Rarely Go After Personal Property

Creditors like credit card companies, loan companies, medical bills and collection agencies will sometimes file a lawsuit and get what is called a judgment. Very simply put, a judgment is a court order or decree stating that a person owes certain money to the creditor.

Because state “exemptions” describe what is protected from creditors and these bankruptcy exemptions include personal property like cars, furniture, and other personal items, many seniors will find that their personal property is protected by these laws. Most senior citizens in average circumstances have personal assets around or less than the exemptions where they live.

Unsecured creditors who obtain judgments virtually never attempt to go after personal property. Why? Used personal property has very little resale value. Creditors have to file complicated papers with the court, pay expensive court fees, and usually get what is called “bond” which costs more money. To employ the services of the sheriff to enforce a judgment by way of collecting personal property is complicated and expensive.

Typically, a judgment creditor engages in legal proceedings to take and sell the assets when they belong to a business and have some sort of resale value. Businesses that are separate legal entities (corporations etc.) do not have exemptions like an individual consumer debtor.

These facts don't stop a debt collector from making threats. Remember debt collectors want to intimidate and scare people into paying, even when that payment comes at the cost of using limited funds that are needed for food, medication, and housing. The threats may be empty, but debt collectors will typically exploit a lack of knowledge whenever they can.

When Senior Citizens Might Need Bankruptcy

Sadly, it is likely that some bankruptcy attorneys recommend filing bankruptcy to seniors who do not genuinely need to do so. Any professional will give advice and make recommendations within the area of his expertise. A chiropractor will suggest manipulations, an acupuncturist will recommend acupuncture and a medical doctor will advise medical treatment. Each one has a specific focus affecting his or her point of view. Bankruptcy attorneys make money by filing bankruptcies. Many bankruptcy attorneys are good people. Professionals just like to use the tools in their particular toolbox.

There are situations, however, when a senior citizen does have a valid need for a bankruptcy filing. Sometimes a bankruptcy is recommended because if the debts are eliminated, then the person's equity in their property will be available to their heirs. Otherwise when a person dies their creditors get paid before their heirs.

However, most lower income seniors pass on without an estate for their heirs due to Medicaid. Over 60 percent of seniors in nursing homes are on Medicaid. These seniors' assets must either be liquidated or pledged to the government to receive Medicaid coverage for their care.

When it comes to protecting assets for future generations, bankruptcy is not the only option for senior citizens. There are other ways including gifting, trusts, and life estate deeds to attempt to protect assets for heirs.

Relief From Debt Collectors Without Bankruptcy

Many seniors have three options for dealing with debt. The first options is to handle these matters on their own. The federal Fair Debt Collection Practices Act provides that when a person sends what is called a “cease and desist” letter to a collector all communication by mail or phone from the collector must stop. A template or example to use use can be easily found on the internet or our website, Dealing with collectors on their own is not easy for the vast majority of seniors even if they know their rights.

The second option is to consult with an experienced bankruptcy attorney. Many bankruptcy attorneys will tell you everything discussed herein, that you simply don’t need to file for the reasons explained on this page. They may clarify that bankruptcy is an option if you so choose, but it may not be a necessary option in your situation. There is cost and other hassle involved. But, when a bankruptcy is not filed and the debts are not paid, collector calls and letters can continue. The problem of what to do about these calls and letters leads us to the third option.

HELPS was started because many seniors could not afford to file bankruptcy, didn’t need bankruptcy, or a bankruptcy would not be a good idea for other reasons. Under federal law when a person is represented by an attorney collectors can only communicate with the attorneys not the senior. That is what HELPS does, we represent seniors and disabled person who receive protected income like social security and retirement to receive communication on their behalf from collectors in order to stop unwanted collector contact. We send letters to collectors and represent our clients ongoing into future. We never turn any senior away who needs our help- we are an IRS approved charity. The cost to enroll in HELPS is minimal or free. We will discuss with any senior regarding their particular situation. Seniors can enroll in HELPS over the phone simply and quickly and immediately have attorney representation to stop collector harassment.

Nevertheless, bankruptcy is a valid legal tool for those who genuinely need it. HELPS does not file bankruptcy for its clients, but we do refer our clients to bankruptcy attorneys when it makes sense.

Seniors can investigate our website, for more information or call toll free at 855 435 7787. We protect poor and lower income seniors from unwanted collector contact and help them maintain their financial independence- all without having to file a bankruptcy. The most common thing we hear from our clients is that when they enrolled in HELPS is that “peace came back to my life.”

All materials have been prepared for general information purposes only to permit you to learn more about our firm, our services and the experience of our attorneys. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.

Learn More About Other Issues and What HELPS Can Do For You.

Peace of Mind
These HELPS clients were dealing with harassing debt collectors and anxiety over old Debt. HELPS provided a solution to their financial worries.