Learn how bankruptcy can safeguard your retirement
If you're in your retirement years, or getting close, and you've got overwhelming debt, now is a good time to consider filing bankruptcy to protect your retirement accounts and get a financial fresh start to make your golden years a bit brighter. Many circumstances can lead to financial problems serious enough to warrant this drastic of a step, but increasingly, more seniors are filing bankruptcy to protect their retirement.
A later-in-life divorce can contribute to serious financial issues, as can the death of a spouse, particularly if that loss came with a large amount of late-stage medical bills that can be crippling financially. Some older adults may find themselves financially drained by helping out adult children that are themselves dealing with money problems. Forced early retirement, which is common in our post-recession era, can also cause serious issues.
Bankruptcy is not simply an option to try and clear out debts before you retire – but if you're older and in over your head, filing sooner rather than later can preserve what's left of your finances and prevent you from getting in deeper. No matter whether you file Chapter 7 or Chapter 13 bankruptcy, your retirement accounts will be safe. But the main mistake many retirees or soon-to-be retirees make is to dip into their retirement account to pay bills.
Another serious financial error is to take out a second mortgage to pay your bills. Your home equity is something that can cushion you against future financial crises. If you file joint bankruptcy with your spouse, up to $70,000 in equity in your home can be exempted from your creditors. Unmarried debtors over age 65 may be able to protect up to $60,000 in equity rather than the standard $35k that individual filers can exempt. This may be enough to entirely protect your home. And your 401(k) and IRA accounts are completely exempt.
What isn't exempt are any retirement benefits paid to you as income. For instance, if you retire from a job like the military or government service position and receive a pension, that will be considered income for your Chapter 7 means test or Chapter 13 income calculation when determining how much your plan payments will be. For retirees, a Chapter 7 bankruptcy is preferable because it will give you a clean slate for most of your bills.
Credit card bills, medical bills, furniture loans and payday loans can all be discharged in a Chapter 7 bankruptcy. If you are current on your mortgage and car loan, these should not be impacted. If you are behind on your mortgage, you may want to pursue a Chapter 13 to save your home, but only if your home has significant value. If you have no equity or negative equity, relinquishing the home and finding a new place to live is a much better financial strategy, even though it can be intimidating.
Many seniors may view filing a Raleigh bankruptcy as a sign that they are financially irresponsible or view it as an embarrassment, but you have to get past this and prioritize your long-term financial well-being over these feelings. If you allow unmanageable debt to eat away at your retirement accounts, you may find yourself struggling to get by in years where you have no capacity to earn income.
To find out more about filing North Carolina bankruptcy as a senior citizen (or older American), contact the law offices of John T Orcutt for a free consultation at one of our convenient locations.