Bankruptcy is a legal proceeding that can provide relief to those unable to repay debts. While everyone’s situation is different, senior citizen bankruptcy (Chapters 7 and 13) works well for those who do not own their own homes or have much equity.

Credit card debts and medical bills can be a burden in the golden years, compounded by the fact that many older adults are on a fixed income. If you’re approaching retirement or are already retired, making hefty debt payments each month can be challenging.

Bankruptcy is a last resort and a drastic step, so weighing the benefits and consequences before making a decision is important. For some older adults, bankruptcy may be the best tool to get a fresh start so they can enjoy their golden years.

Should I File for Bankruptcy as a Senior?

It’s important for older adults to consult with a bankruptcy lawyer about whether their assets will be exempt and the type of debt that can be tackled with bankruptcy. Consider whether most of your assets, such as your retirement income and Social Security, are necessary for living.

Consider what type of assets you have. If you have significant equity in your home or have extra property or income, they may be at risk when you file for bankruptcy. It’s also important to consider whether you’ll be able to discharge enough debts to make the lawyer fees and cost of filing worthwhile.

Another important point to note is that you’ll be able to file for Chapter 7 bankruptcy if your income is low enough to pass the means test. If not, you may have to file for Chapter 13 bankruptcy, which involves a repayment plan of 3-5 years, and many older adults may not be able to afford those monthly payments.

Why Is Bankruptcy as a Senior Different?

Senior citizen bankruptcy is different from bankruptcy for other age groups due to the factors you need to consider when deciding if it’s right for you. Senior citizens must carefully consider all other options available to them before filing for bankruptcy.

However, if you’re in debt and retired, there are unique factors to consider before opting for bankruptcy as a solution. For example, medical costs and inflation have a much bigger impact on older adults with complex health issues and fixed incomes. This may make it more important for them to get rid of mounting medical debt.

On the other hand, some seniors may have a significant amount of equity in their homes. Protecting their equity may be a priority for most of these older adults. Another unique challenge is that seniors may have little time on hand, and bankruptcy is not an instant solution.

The time it takes to complete the process and become debt-free may not be a feasible solution for many older adults.

How Bankruptcy Impacts Senior's Finances

While most assets held by seniors, such as retirement income and 401(k)s, are protected in bankruptcy proceedings, it’s important to learn more about bankruptcy exemptions that apply to you.

Retirement Savings

Most types of retirement accounts are protected during the bankruptcy proceedings. For example, in Chapter 7, pension plans, 401(k)s, and IRAs are protected. However, the federal bankruptcy exemption limit for Roth IRAs and IRAs is $1,512,350.

This means that any amount above the bankruptcy exemption limit will not be safe. However, for most senior citizens, the remaining amount is enough to support them during their retirement years.

In Chapter 13, you’ll be able to keep your assets, so your retirement accounts are also protected.

Social Security Benefits

Any Social Security benefits you receive are protected during bankruptcy. However, you must keep that money separate from other money in a different account. If you merge your Social Security benefit amount with your IRA or savings amount, it is considered part of the proceedings.

If you’ve already merged your Social Security benefit money, we recommend discussing your next steps with an attorney.

Determining When Bankruptcy Makes Sense for a Senior

To determine whether senior citizen bankruptcy makes sense or is beneficial for you, consider these points:

  • Whether you have the type of debt that can be discharged in bankruptcy.
  • If you can protect most or all of your property.
  • If it’s important for you to catch up on car or home payments through Chapter 13 reorganization.
  • If you’re able to pass the means test for Chapter 7.
  • If you’re able to discharge enough debt to make the lawyer fees, filing fees, and other costs worth it.

For senior citizens, it may make sense to file for bankruptcy if they’ve amassed a lot of medical debt. Bankruptcy may be a viable alternative for retirees whose income has decreased and whose obligations have accumulated.

An overwhelming amount of seniors’ credit card debt may be another situation where bankruptcy may make sense.

Teresa Dodson, a financial expert and the founder of Greenbacks Consulting, shares her thoughts on whether or not seniors should consider filing for bankruptcy. “Filing bankruptcy as a senior may come at a higher risk,” warns Dodson. She explains that seniors typically have no more earning potential and may have most of their money in investment accounts or assets. 

“Seeking an attorney to help protect them during this process is a must,” Dodson adds.

What You Need to File for Bankruptcy as a Senior

We recommend consulting a law firm as the first step in determining whether senior citizen bankruptcy is right for you. Most lawyers offer a free consultation, and they can help you decide whether you should file for bankruptcy, what type of bankruptcy will be right for you, and whether you’re eligible for it.

Are you eligible?

There’s no age limit for filing bankruptcy, but some states may require you to be at least 18 years old. Here’s a list of eligibility requirements for Chapter 7 and Chapter 13 bankruptcy.

Chapter 7

  • You must pass the means test.
  • You must not have filed a petition that was dismissed by the court in the last 180 days.
  • You must not have a previous Chapter 7 bankruptcy in the last eight years or a Chapter 13 bankruptcy in the last six years.
  • You must complete a debt counseling course no more than 180 days before filing.

Chapter 13

  • Your combined total secured and unsecured debts shouldn’t be more than $2,750,000.
  • You must have a regular income.
  • You must have filed your tax returns regularly. You must not have any past-due Federal or State taxes.
  • You must not have filed a petition that was dismissed by the court in the last 180 days.
  • You must not have a Chapter 13 bankruptcy in the last two years or a Chapter 7, 11, or 12 bankruptcy in the last four years.

Documentation for Bankruptcy

The type of documents you’ll need to submit for senior citizen bankruptcy will depend on which chapter you’re filing for. In most cases, you may need the documents listed below:

  • Proof of income for the last six months
  • Recent bank statements
  • Tax returns for the last two years
  • Retirement account and brokerage account statements
  • Appraisals for any property you own
  • Documents related to your assets, debts, and income
  • Certificate of completion for the mandatory credit counseling session

Bankruptcy involves a lot of paperwork. You’ll need to fill out a bankruptcy form, which will have a lot of detailed questions about your assets, debts, expenses, and income. An attorney with a lot of knowledge of bankruptcy law can help you complete the necessary forms.

Alternatives to Bankruptcy in Retirement

Senior citizen bankruptcy is not the only, or often the most appropriate, way to address debt. There are many other alternatives you should consider first.

Consider Debt Consolidation

If you have multiple unsecured debts, you can consolidate them all into a single loan at a lower interest rate. This may make it easier to pay off your debts by reducing the interest you pay over the life of the loan.

Negotiate With Creditors

You can also consider debt settlement to pay less than what you owe to your creditors. If you are at least six months past due on payments and can come up with a lump sum payment, your creditors may be inclined to accept the offer.

Look for Financial Assistance Programs

A lot of Americans are eligible for many senior assistance programs that can reduce their expenses and free up money that can be used to pay off debt. From nutrition programs like SNAP and health care benefits like Medicare and Medicaid, you may qualify for financial assistance from the government as well as non-profit organizations.

Consider Your Debt Relief Options

Filing for senior citizen bankruptcy can be complex, and it’s not a decision you should take lightly. It’s always a good idea to talk to an experienced bankruptcy attorney before you file for bankruptcy to determine if it’s the right solution for you.

We also recommend evaluating your debts, budgeting, and exploring all your debt relief options first. There are currently a plethora of grocery stimulus, financial assistance, and other key options that can help to ease your financial burden, so be sure to do your research.