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Causes of Bankruptcy In Retirement, A Growing Problem

People 60 years and older are the fastest growing segment of the population seeking bankruptcy protection.


The basic problem is simple. More expenses with medical care, taxes, gas and other costs while at the same time income is decreasing. Social security has not been keeping pace and cost of living adjustments have not been forthcoming from the government. The great recession of 2008 also put a dent in many retirement and pension plans. Additionally many people who are struggling with debt will have taken some of their retirement plans or taken out home equity in a futile effort to retire the debt.


Most retired people think that Medicare will protect them from medical disasters. This is no longer the case for many situations. There are quite a lot of out of pocket expenses including the cost of long term care. If your medical expenses are increasing and your income in real dollars terms keeps going down, it is just a question of time before the well runs dry.Funeral expense and end of life expense for family members can also be a source of debt for older Americans.


The result is that many seniors are living off of their credit cards and end up suffering for decades with harassment from creditors and interest payments. Sometimes it gets so bad that people sacrifice home equity they had intended to leave to children by getting a second mortgage or a reverse mortgage. One recent study has shown that older Americans carry 50% more credit card debt than younger Americans.


In Colorado persons 60 years or older can protect $105,000 of equity in their homes from creditors in bankruptcy. Retirement and pension plans are exempt up to 1.1 million dollars. So people don’t lose those items, or social security income, in a bankruptcy. However, if a person dies with significant debt those creditors who could have been discharged in bankruptcy will have a claim against your home equity. This means your children will not get what you had intended they get from your estate. Instead your creditors will get these assets.


Another consequence of carrying too much debt is stress and unhappiness during what were to be your " golden years." Many seniors lead lives of quiet desperation and are scared to even consider the idea of bankruptcy. The truth is most seniors who file never even appear before a bankruptcy judge. The vast majority of interaction with the legal system is with your own lawyer in a bankruptcy case.


When necessary a bankruptcy for seniors or retired people will protect your assets and get you a fresh start, and at the same time make you happier and healthier. People who are retired usually have less of a need for a good credit rating as they are unlikely to be making major purchases. Believe it or not you will still be able to get credit cards after filing bankruptcy for emergencies.