Retirement should be a time to enjoy yourself after a lifetime of work. You invested your money well, so life should be smooth sailing from now on.
But life doesn’t always go as planned, and one major medical emergency could quickly drain your savings.
Why are retirees declaring bankruptcy?
There are several reasons why more and more senior citizens are finding themselves deep in debt, such as:
- Medical expenses: We sometimes need more medical care as we get older. We notice aches and pains in new places, health problems start to appear and our bodies become more frail. Approximately 29 million people aged 60 and older visit the emergency room annually. Many of them end up admitted to the hospital. Even with insurance, they can find themselves facing substantial medical bills.
- Student loans: We associate student loans with people in their 20s and 30s. However, 3.5 million people over 60 are carrying $1.25 billion in student loans. This may be their loans to return to school or Parent PLUS loans to fund their children’s college education.
- Lack of savings: Many older people retire with little to no savings, relying on social security to cover their expenses.
A primary concern for retirees considering bankruptcy is its impact on their retirement income and benefits. Social Security income is exempt, therefore, they will still receive their money, and there won’t be any reduction in benefits. It’s important to keep income from social security in a separate account so that it’s not mixed with other savings.
Retirement accounts such as pensions, 401(k)s and IRAs are also exempt. However, IRAs have a federal exemption cap of $1.5 million. But Texas law states that IRAs are 100% exempt.
Texas also has an unlimited homestead exemption. If you live on less than 10 acres in an urban area or 100 acres in a rural area, your home can’t be seized in bankruptcy proceedings.
Your bank savings and non-retirement investments, such as stocks and bonds, aren’t shielded. These assets could be used to repay creditors.
Declaring bankruptcy can provide relief from overwhelming debt, but it does have its drawbacks. It’s important that you work with someone knowledgeable. They can review all of your options and help you choose the best one.