Turbo Takeaways

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) can work 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.

For some older adults, bankruptcy may be the best tool to get a fresh start so they can enjoy their golden years. It will depend on your financial situation, home equity, and income. However, it is a last resort and a drastic step, so weighing the benefits and consequences before making a decision is important.

Should I File for Bankruptcy as a Senior?

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

Think about what type of assets you have. If you have significant home equity or valuable property, these may be at risk in bankruptcy. Additionally, determine whether the amount of discharged debt justifies the costs of filing and attorney fees.

You can 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. Unlike younger individuals, senior citizens may have fewer recovery options, making it essential to explore all alternatives before considering 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 makes eliminating medical debt a higher priority for many seniors.

On the other hand, some seniors may have a significant amount of equity in their homes, so protecting their equity may be a priority. Another unique challenge is that seniors may have limited time to recover financially, 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. As of 2024, 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 many 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

Social Security benefits are generally protected during bankruptcy, but they must be kept in a separate account to maintain their exempt status. If you merge your Social Security benefit amount with your IRA or savings amount, they can lose their protected status in bankruptcy proceedings.

If you’ve already merged your Social Security benefit money, it's best to discuss 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:

  • If 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 can 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 could be another situation where bankruptcy may make sense.

Teresa Dodson, a financial expert and the founder of Greenbacks Consulting, shares her thoughts on whether seniors should consider filing for bankruptcy. “Filing bankruptcy as a senior may come at a higher risk,” warns Dodson.

Dodson 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,” she adds.

What You Need to File for Bankruptcy as a Senior

Before filing for bankruptcy, seniors must gather important documents to determine their eligibility and ensure their assets are protected. These records help bankruptcy courts assess income, debts, and exemptions, making the process smoother. Consulting a law firm that specializes in bankruptcy can clarify which documents are needed for your case.

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 past 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 past 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:

  • 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 many 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.

Look for Financial Assistance Programs

Many Americans qualify for senior assistance programs that can reduce their expenses, freeing up money that can be used for debt repayment. 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.

Explore Debt Consolidation

If you have multiple unsecured debts, you can consolidate them all into a single loan at a lower interest rate. Debt consolidation 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.

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.

Evaluate your debts, budgeting, and explore all your debt relief options first. There are various financial assistance resources, including housing aid, grocery stimulus programs, and other key options that can help to ease your financial burden, so be sure to do your research.