Older consumers are burdened in 2016 with unprecedented amounts of debt as more baby boomers reach what are supposed to be their retirement years owing far more than previous generations owed on their vehicles, homes, credit cards, medical bills and other financial obligations.
As many employers have eliminated traditional pension systems in the last two decades, some workers are having difficulty managing their retirement savings. Millions of retirees still struggle with mortgage payments. Far too many now reaching retirement age didn’t save sufficiently and have already spent their retirement savings.
If you are retirement age, and if you’re facing or anticipating a home foreclosure, a vehicle repossession, or some other legal action by your creditors, discuss your financial situation and your legal options at once with a good bankruptcy attorney, and in the Dallas-Fort Worth area, speak with an experienced Dallas bankruptcy lawyer.
The average 65-year-old borrower has 47 percent more mortgage debt and 29 percent more auto debt than 65-year-olds had in 2003, after adjusting for inflation, according to statistics released in February by the Federal Reserve Bank of New York and reported by the Wall Street Journal.
The typical U.S. household debt picture has vastly changed in the 21st century. Fifteen years ago, for example, student loan debt was unheard-of among consumers over age 55. In 2016, student loan debt is a growing debt category for older consumers.
WHAT ABOUT MEDICAL AND MORTGAGE DEBT?
Medical debt, as you might have guessed, is one of the top reasons that older consumers file for bankruptcy.
Filing for a Chapter 7 bankruptcy can wipe out someone’s outstanding medical bills in just a few months, but it only eliminates the debts that exist at the time the bankruptcy is filed, and those who file for bankruptcy should understand that they will take a hit on their credit report. Nevertheless, some older consumers may have so much medical debt that bankruptcy will be their only practical option.
Mortgage debt is another growing concern for many older consumers in the U.S. According to the Consumer Financial Protection Bureau, 30 percent of homeowners age 65 and older were carrying home loans as of 2013, up from 22 percent in 2001. And the number of homeowners age 75 and up who were still paying mortgages almost tripled from 8 percent in 2001 to 21 percent in 2011.
The median mortgage debt held by homeowners age 65 and over has more than doubled as well, from about $43,000 in 2001 to about $88,000 in 2013. A disturbingly high number of retirees are still paying a mortgage that exceeds their home’s value. In fact, according to the AARP, about 1.5 million homeowners age 50 and above lost their homes between 2007 and 2011. For those age 75 and up, foreclosure rates are far too high.
The concerns could become even more worrisome as increasing numbers of older people begin to retire without pension plans or sufficient assets.
CAN YOUR HOME BE PROTECTED IN BANKRUPTCY?
For many senior consumers, their home is their retirement safety net. If you have equity in your home, consult a good bankruptcy attorney because you must make sure that your equity will be safe in a bankruptcy.
Fortunately, many states, as well as the federal bankruptcy exemptions, offer debtors a homestead exemption during bankruptcy to protect a certain amount of equity in their homes. Many states – although not Texas – require individuals who are filing for bankruptcy to use the state exemptions, but in Texas, talk with your bankruptcy lawyer about whether choosing the state or federal exemptions will be better in your own bankruptcy.
In addition to home equity, many older consumers and retirees also have a considerable amount of savings in their retirement accounts. Under federal law, almost all tax exempt retirement accounts, including 401(k)s, 403(b)s, profit-sharing, money purchase, and defined-benefit plans, are fully exempt when you file for bankruptcy.
IRAs and Roth IRAs are also protected up to $1,245,475 (that figure will be adjusted for inflation as of April 1, 2016). Thus, in most cases, most retirement savings will be protected in a Chapter 7 bankruptcy.
You must pass a means test to qualify for a Chapter 7 bankruptcy. The means test matches your average monthly income against the median household income in your state to determine if you are eligible to file for Chapter 7 bankruptcy. If your income is too high, you may have to consider a Chapter 13 bankruptcy or another option entirely. However, under the law, any benefits you receive through Social Security are not considered as income for purposes of the means test.
Since most older consumers collect Social Security benefits, this is a benefit if someone who is dependent on Social Security needs to file for bankruptcy. However, Social Security income must be disclosed, and if you have other income as well, you may or may not be eligible to file a Chapter 7 bankruptcy.
WHY DO OLDER CONSUMERS CARRY MORE DEBT?
For the past two years, according to the Federal Reserve Bank of New York’s statistics, household debts have been incrementally increasing. That trend remained consistent in the last quarter of 2015, with U.S. household debt rising by over $50 billion to surpass the $12 trillion figure.
Student loan debts, auto loan debts, and credit card balances all rose higher in the final quarter of 2015. One reason that older consumers hold a growing share of the nation’s household debt is that after the “great recession” of 2007 and 2008, older borrowers had an easier time borrowing and taking on new debts.
As credit standards tightened, borrowing and taking on new debts became much more difficult for younger consumers. While the average 30-year-old borrower has almost triple the student loan debt that average 30-year-old borrowers had in 2003, 30-year-olds carry far less home, credit card, medical, and vehicle debt, so their average total debt balances are far lower than that of older consumers.
For older consumers facing foreclosure, repossession, or some other legal action from creditors, bankruptcy is an option that must be considered. It’s not for everyone, and if you have other options that are equally helpful, a good bankruptcy lawyer will explain those options to you.
However, for some older consumers, bankruptcy is inevitably the only realistic option, and if you work with an experienced bankruptcy attorney, you’ll have nothing to fear. In today’s bankruptcy proceedings, no one is left destitute, and many who file for bankruptcy are even able to keep their homes and vehicles.
One reason bankruptcy may be right for many older individuals is because they will be less damaged than younger consumers by poor credit ratings.
WHAT PROTECTION DOES BANKRUPTCY OFFER?
As soon as someone files for bankruptcy, an “automatic stay” is issued by the bankruptcy court, and that automatic stay prevents mortgage lenders – and your other creditors – from taking or continuing any action against you during the course of your bankruptcy. If you are retired and you are struggling to make mortgage payments, arrange right away – before your circumstances become even more dire – to speak with an experienced bankruptcy attorney, and in the Dallas-Fort Worth area, with an experienced Dallas bankruptcy lawyer.
The longer you wait to deal with mounting debts, the fewer options remain available to you.
In the state of Texas, when you file for bankruptcy, an “estate” is established by the bankruptcy court that includes whatever you own as well as whatever you are owed, such as an income tax refund that has not yet arrived. The estate is liquidated to satisfy your creditors in a Chapter 7 bankruptcy.
If you do not qualify for a Chapter 7 bankruptcy, and you instead choose to file a Chapter 13 bankruptcy, your exemptions can remove some of your property from the estate and may reduce the amount you must pay.
You may exempt a generous amount of your property and assets under federal bankruptcy law. States set forth their own exemptions, but Texas is a state where you may choose to use either the federal exemptions or the state exemptions, although some of the federal exemptions always apply.
If you are married and the two of you choose to file a joint bankruptcy, you are both entitled to your own exemptions. In Texas, you may take advantage of the state’s unlimited homestead exemption for homes set on ten acres or less in a city, town, or village or one hundred acres or less in a rural setting (two hundred acres for married couples).
Texas also lets you exempt one motor vehicle – without regard to that vehicle’s value – per household member.
HOW CAN YOU LEARN MORE?
Under the Texas bankruptcy laws, personal bankruptcy exemptions are substantial, but they will hinge to some extent on how much you owe and on how much you own.
You can exempt up to twelve heads of cattle in Texas, for example, and two horses. The important point is that you won’t lose everything or end up homeless and destitute if you need to file for bankruptcy in the state of Texas. Learn more.
Especially if you are an older consumer or a retiree and you are struggling with mounting debt in the Dallas-Fort Worth area, discuss bankruptcy and your other options promptly with an experienced Dallas bankruptcy lawyer.