The Rise in Bankruptcy Filings for Older Individuals and Seniors

Since 2007, bankruptcy filings have doubled for those aged 55 and over. Despite being at a time in life where their children are out of the home and finances should be relatively stable, these older filers now make up about 20% of all people currently filing for bankruptcy relief. Compare that to the smallest group of bankruptcy filers, i.e. those aged 25 and less which account for less than 2% of all bankruptcy filers.

So why is it that older individuals and seniors make up such a disproportionate percentage of bankruptcy filings?

Seniors typically have lower, fixed incomes consisting of social security and possibly pension or other limited retirement income that is barely enough to meet basic living expenses without any wiggle room in the budget for savings for unexpected costs.  In the case of a couple where one spouse may still work full time, often one income is not sufficient to meet bills even with social security and a pension payment. This limited income makes it difficult if not impossible for seniors to get ahead of debt when unexpected temporary expenses and medical emergencies hit.

A quick—but perhaps ill advised—fix many seniors opt for is to refinance their home, pulling money out to pay off credit cards and medical bills and get a head of bills in the short term. But for those on a fixed income, this is a terrible idea on many fronts. First, it converts unsecured debts (which you can go bankrupt on) into secured debt (which you cannot bankrupt). Second, pulling money out of your home to pays creditors adds to the balance owed which in turn increases the monthly mortgage/home equity line payment. A higher home payment does not solve any problem when you are already struggling to make ends meet. Plus a refinance adds charges of several thousand dollars to your mortgage balance in addition to the money pulled out from the home.

Your better option is to explore the bankruptcy alternative. As a senior with limited income, your financial priority should be to protect cash flow by minimizing debt service so that you can afford for the long term to pay the necessary home mortgage and other monthly expenses. Your social security and pension payments may only incur marginal or nominal annual increases and retirement assets may one day be depleted. Best to see if you can discharge credit cards and other unsecured debts in bankruptcy, thereby preserving your future income and also your estate.

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