Today’s seniors and retirees are facing an increasing amount of financial pressure, especially considering the current state of Social Security. For many, the imagined stigma of filing for bankruptcy to escape debt is unbearable, so many continue to chip away at their savings that took a lifetime to build.
A common fear among retirees considering bankruptcy is whether they will be forced to liquidate their retirement savings, leaving them with nothing when their case is over. Fortunately, this fear is mostly unfounded—thanks to bankruptcy law overhauls in 2005, retirement accounts and income are mostly exempt under both Chapter 7 and Chapter 13 bankruptcy, including:
- Social Security income
- IRA accounts up to $1,245,475
- Profit-sharing plans
Filing for bankruptcy does consider your retirement benefits paid as income, but in general, your retirement assets are protected under bankruptcy law. You cannot be deprived of retirement income that is used for your basic needs such as food, clothing, and shelter, but amounts beyond that can be taken to repay your debt in a Chapter 7 bankruptcy. If you choose a Chapter 13 bankruptcy, this income amount will be used to determine your repayment schedule.
As is the case with most bankruptcies, credit takes a significant hit after filing for bankruptcy. For many seniors in financial trouble, however, this is the lesser of two evils. Emerging debt-free (with the exception of federal tax debt and select other debt) from a bankruptcy may be considered preferable to leaving loved ones with leftover debt, and credit can easily be rebuilt over time with careful spending and credit use.
While bankruptcy may not be the right solution to for every retiree in debt, it can also be an extraordinarily helpful financial tool. To learn more about how filing for bankruptcy will affect you, speak to our Phoenix bankruptcy attorneys today.