How much will you leave to your children?
Retirees commonly find themselves up against a financial paradox: Their medical bills and other living costs increase sharply, as their income and savings diminish over time. For many, this means cutting back on certain expenditures. A long-planned vacation may no longer be feasible. Rent, car payments, and even the cost of cable TV may prove to be unaffordable. In today's economy, individuals who'd wanted to leave a substantial inheritance to their children and grandchildren are unable to do so. Instead, they find themselves leaving a legacy of debt.
Keeping your most valuable belongings, and becoming debt-free
According to a recent article in The New York Times, "For some older Americans, bankruptcy can bring much-needed relief from debt brought on by medical expenses or helping needy children." Following negotiations with creditors, the article continues, a bankruptcy filing can help seniors keep their retirement assets.
Creditors aren't allowed to touch your assets
Since 2005, when congress revised bankruptcy laws, almost every type of retirement account and pension fund has been exempted from bankruptcy proceedings. Protected income sources include:
- IRAs (up to $1.25 million)
- Social Security payments
- Profit-sharing plans
- Money purchase plans
- Defined-benefit plans
Moreover, the "homestead exemption" can be applied in bankruptcy filings to protect a retiree's house from being reclaimed.
You will always have options.
Many seniors benefit from a Chapter 7 bankruptcy, in which creditors receive payment through the selling-off of assets. Individuals with many assets or a great deal of income usually prefer a Chapter 13 filing, which is akin to a long-term payment plan and allows individuals to keep their belongings.