Our firm works with many older clients who are facing both retirement and overwhelming debt. Does it ever make sense for retirees to go bankrupt? For many seniors yes, but before you file that case you need to take into consideration a few points.
If you don’t have any assets:
1. Stop paying your creditors.
If you don’t own any assets and all of your income if from social security or disability then a creditor cannot garnish these funds. Keep in mind that doing nothing doesn’t eliminate your debt. Your creditors can still call you, send you letters, and sue you. Of course even if they sue you they cannot enforce the judgment since you cannot garnish social security or disability wages.
2. Try to settle your debts directly with your creditors.
If you really feel an urge to settle your accounts then you can reach out to each creditor and let them know that you are on a fixed income and that you would want to settle your debt with them.
3. File a Chapter 7 Bankruptcy
You can file a Chapter 7 bankruptcy and discharge almost all of your unsecured debt. Make sure you review your finances with a qualified bankruptcy attorney in your area to ensure that there are no other issues, such as fraudulent transfers, that could affect your case. Most retirement accounts are protected from the trustee in bankruptcy which means that you can get rid of all your unsecured debt and still retain your retirement savings.
If you have assets:
If you have assets then you need to ensure that you meet with a bankruptcy attorney to determine if Chapter 13 or Chapter 7 is the best filing choice. Debtors have to proceed with caution when filing a Chapter 7 case since assets that are not protected by bankruptcy exemptions can be liquidated and sold for the benefit of your creditors. In addition, once you start a Chapter 7 case you cannot just dismiss it if you discover that you have assets that are unprotected. A bankruptcy attorney can review your assets and exemptions and suggest the best bankruptcy chapter to file.
If you are nearing retirement age and still have looming debt whatever you do, don’t start pulling money out of your retirement accounts to pay down debt until you meet with a bankruptcy attorney. We see this common mistake on a weekly basis. Consumers who could have easily gotten rid of their debt in a bankruptcy have now depleted their retirement savings and have to put off retirement even longer.
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