Many people think that bankruptcy is something they will never experience, especially if they are retired. However, this situation can occur even if you’ve been financially responsible. Unforeseen circumstances can lead to financial hardship that can be difficult to deal with. Unfortunately, bankruptcy is a growing problem for the aging population. Statistics show that bankruptcy filing rates among retirees have doubled since 1994, currently accounting for 20 percent of bankruptcy filings.
Why Retirees Are Facing Bankruptcy
There are many reasons why you might choose bankruptcy. However, the single most reason why people are filing for bankruptcy is that of financial hardship caused by medical bills. Retirees live on a fixed income and budget for the living expenses and often don’t have any extra to cover medical bills. In a perfect world, you would have great health when entering retirement, but the truth is that as we get older, we face more medical issues than ever. These can really add up and create a financial hardship.
Tips To Avoid Bankruptcy
Where there is a will there’s a way says the old English proverb. Remember this saying when you are being challenged financially. Follow some of the following tips to avoid bankruptcy:
- Cut down on spending. This might include things like cutting cable or eating out less. During the holidays, instead of buying gifts, enjoy time with loved ones because that’s what’s important.
- Sell items. This may include big ticket items, such as a boat or car, or smaller items like clothing. This can give you instant access to cash to alleviate the stress of the financial strain.
- Take in a roommate. This may not be the most ideal situation, but it can help to get your finances in order and provide you with regular extra income.
- Build an emergency fund. Even if you have limited income, you can still put small amounts of money into a savings account that will help you avoid trouble should an unexpected expense arise.
- Invest in a health savings account (HSA). You can deposit pre-tax dollars into such an account that will grow free of capital gains and dividend taxes. You can then withdraw the funds tax-free as you need them for medical expenses.
When Bankruptcy Is A Good Option
The question of whether or not to file for bankruptcy when you’re retired can be confusing. The answer to that question is going to depend largely on the assets you own and your income and income sources and the debt you have. You must weigh your options carefully.
- Take into consideration your assets. Do you own a home, nice cars, fine jewelry or other pricey items? If you do, then you might consider filing for bankruptcy. Creditors who are seeking repayment can actually seize such assets. Many states, however, protect debtors from having their clothing, furnishings and some other basics taken away.
- If your primary income comes from retirement accounts or you receive social security benefits, then bankruptcy becomes an attractive option because such income is not affected by bankruptcy.
- You have medical bills that are impossible to repay. Unfortunately, anyone can suffer an unexpected health issue that leaves high medical bills in its wake. As a retiree, you are likely on a fixed income that would make it very difficult for you to repay any extraordinary expenses, like unexpected medical bills. Therefore, bankruptcy is an option to get the bill collectors to stop calling and threatening to take your assets and seize your income.
Determining if bankruptcy is a good option for you in retirement can be challenging. Therefore, it is wise to consult with an experienced bankruptcy attorney who can provide you with expert legal advice and help you make the right decision.