Bankruptcy is not just for the young. A fresh start may be necessary for a number of reasons. Many senior citizens find themselves deep in medical debt as advanced age takes its toll on the body. There are benefits to filing Chapter 7 bankruptcy and it can help you enjoy your retirement years.

• Wipe out unmanageable debt
• Save your primary home
• Protect your income and retirement accounts

Bankruptcy Basics

When you file Chapter 7, collectors are no longer allowed to make efforts to collect debt. This means the creditors cannot call or send letters demanding payment.

Bankruptcy, when completed, will only wipe out debts accrued prior to filing. If you have major medical problems, be aware that any medical bills created after your filing will not be eliminated. This also goes for any credit card usage or other new bills. Also, any lines of credit that have been tapped within 30 days of filing could endanger the success of the bankruptcy. 

Possible Pitfalls

If you have a lot of nonexempt property, bankruptcy is going to be a very painful process. The trustee will collect any property that cannot legally be exempt from the process. What is exempt depends on the state you live in. Many states follow the Federal guidelines for exemptions. Be aware of what your state will allow you to declare as exempt before entering the process.

Often second or vacation homes, extremely expensive cars, and luxury items are considered non-exempt property. The bankruptcy trustee will collect these items to sell. All proceeds from the sale will be divided among your creditors. Though it may be disheartening to lose valuable possessions you hoped to pass down to your children, once the proceeds have gone to the creditors, you will no longer owe that creditor.

Silver Lining: Keeping Your Home

Senior citizens are of the generation that purchased homes, planning for it to be a retirement nest egg. However, after the housing bubble burst, many homes lost value. Senior citizens who took out reverse mortgages before the housing crisis will likely be able to keep their homes. In some cases, the reverse mortgage will still pay out installments after the bankruptcy.

Another bright spot is that retirement accounts such as 401Ks and IRAs are automatically exempt, regardless of how much they are worth. Additionally, Social Security payments are not included in the means test, which determines whether you have too much income to file bankruptcy.

If you are a senior citizen considering bankruptcy, get in touch with a bankruptcy attorney like one from Morrison & Murff to determine if bankruptcy is right for you. You will find it can prevent those headaches and give you a fresh start to enjoy your retirement years.