Why Are More Senior Citizens Filing for Bankruptcy?
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Since 1991, the number of people age 55 and older who have filed for bankruptcy has increased significantly. For seniors 65 and older, the trend is even worse.*
According to a paper published by Katherine Porter, a law professor at the University of California, Irvine, the percentage of older Americans declaring bankruptcy has gone up significantly in the last fifteen years. In fact, Americans aged 55 to 64 have seen their bankruptcy rate rise by 66%, and those 65 and older have seen it increase by a whopping 204% since the 90s. Around 12% of all bankruptcies filed in the country now are people 65 and older. The trend is disturbing, and it’s important to know why.
Before we go further, it’s worth noting that despite a social stigma, there is nothing wrong with declaring bankruptcy if you have debt you cannot pay. Bankruptcy, in many cases, is simply a legally sanctioned form of debt restructuring. Filing for bankruptcy puts a legal hold on all existing debt collection attempts and will stop all collections attempts against you. This can be very good for people who find themselves plagued by phone calls or nasty letters. Do not think of bankruptcy as a failure of character, it is simply one of many available avenues to help you get in front of your debts.
The study finds that the primary cause of senior bankruptcy is medical debt.** This will not be surprising to anyone who has had to pay significant medical bills, even when they have insurance. 6 out of 10 people age 65 and older who file bankruptcy cite medical debt as one of the reasons. The study’s authors cite a mixture of increased medical costs, lack of savings due to a slowing economy, and a lack of stable, full-time employment as contributing factors to the senior debt crisis.
What to Do if You’re in Debt
There are many options available to you, if you find yourself in debt. Many creditors will offer payment plans to spread your bills out over a longer period of time. Depending on the type of debt, many companies are legally obligated to negotiate with you, before they attempt to take you to collections or threaten you. If you feel a company is being abusive, or unfair in their debt collection practices, or if you believe they have sold your debt off to a third party who does not have a legal claim, contact the FTC and the CFPB to file complaints. You can also file a complaint with your state attorney general if harassment continues after contacting the proper authorities. Remember: despite their threats, there is very little a debt collector can do to you legally.
If you cannot arrange acceptable payment terms with your debt collectors, you can consider the two different types of personal bankruptcy as an option:
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Chapter 7 bankruptcy eliminates all of your personal debt, but has more stringent requirements to qualify. You will have to submit detailed financial statements to prove you qualify for complete debt discharge, and may be monitored for years after the fact to ensure you were not being dishonest with the trustee.
Chapter 13 is a debt restructuring, which will result in installment payments made to the court that are then distributed to your creditors. This type of bankruptcy has far fewer requirements, and can be used to pay off all sorts of debt, including tax debt, in a payment plan negotiated with the court. Importantly, the court will decide what you can afford to pay, and force your creditors to accept a portion of this.
Hire an Attorney
Bankruptcy lawyers work on a fee structure that generally pays them out of your filing. Talk to a bankruptcy attorney before you file, since the consultation is usually free, and they can give you advice on the best type of filing for your circumstances. You can find a good bankruptcy attorney by calling your local bar association and asking for a referral – do this rather than using Google or other searches.
Bankruptcy and Your Credit
At the end of either type of bankruptcy, your debt will be fully discharged. During and after the bankruptcy, it is illegal for any creditor to attempt to contact you for collections. You will be free and clear of all the debts covered in your bankruptcy, once the period is over.
A bankruptcy can stay on your credit report for 7 to 10 years. It will prevent you from getting a mortgage, and, potentially, other items like car loans and unsecured credit cards. However, you can still obtain secured credit cards and build credit over time while paying off your bankruptcy. You can also still open a bank account.
Though it is not typically a problem for people under bankruptcy, you should make sure you have a copy of your credit report and that you placed a freeze on your three bureau scores, if you can afford it. This will prevent anyone from accessing your report without your permission, and if you find any additional mistakes on your report, you can dispute them during the time you are under bankruptcy, so that you emerge with clean credit on the other side.***
* Lazarony, Lucy, (October, 2019). Why So Many 55+ People Are Going Bankrupt and How to Bounce Back. NextAvenue. Retrieved November, 2019
** Lazarony, Lucy, (October, 2019). Why So Many 55+ People Are Going Bankrupt and How to Bounce Back. NextAvenue. Retrieved November, 2019
*** Lazarony, Lucy, (October, 2019). Why So Many 55+ People Are Going Bankrupt and How to Bounce Back. NextAvenue. Retrieved November, 2019