Corash & Hollender, P.C.

Bankruptcy benefits for retirees

That's something you don't hear every day. Who associates personal bankruptcy with something that might be beneficial, especially to older New York consumers?

Not all retirees are living in splendor with fat pensions and no financial problems. A lot of older Americans are struggling to get by with worries about medical expenses, credit card bills and holding onto their homes. It can be very difficult to make ends meet on a fixed income no matter how well you've lived in the past.

Some retired people are liquidating savings that were meant to last decades in the name of debt relief. To some older New Yorkers, bankruptcy is an unutterable word no matter how tight money gets, but maybe it's time to try saying it out loud.

Are you aware, under Chapter 13 bankruptcy, that you may be able to eliminate liens attached to a second mortgage? It's possible, particularly if what you owe on a primary residence exceeds the home's value. There's also an opportunity for qualified debtors to lose home equity debt, too.

Federal and state bankruptcy laws divide debt into secured and unsecured assets. Secured debts creditors are the first to be paid through asset liquidation in Chapter 7 bankruptcy or affordable payback plans in Chapter 13. Unsecured debt is discharged by a bankruptcy court, relieving the consumer of the responsibilities attached to it.

Assets are also classified as exempt or nonexempt. Nonexempt assets are sold off in Chapter 7 to satisfy creditors, but exempt property remains untouched. You may be surprised to find out how much of your retirement savings and income is immune from creditors. Exemptions include individual retirement accounts, Social Security, and 401 (k) plans among other income sources common among retired consumers.

You may discover more financial benefits by discussing bankruptcy options with an attorney. There's no harm in investigating the possibilities of eliminating unmanageable debt.

Source: The Street, "Why Some Retired People Might Consider Filing for Bankruptcy," Juliette Fairley, June 05, 2015

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