Bankruptcy and Older Folks

10 Jun Bankruptcy and Older Folks

I’ve been having more and more potential clients who are older come see me asking about bankruptcy. Sometimes, bankruptcy is a good solution for these people. Sometimes though, bankruptcy is not a good option. And quite often, very few good options remain to deal with your debt.

Recently, I spoke with an older person who wanted to know if bankruptcy would work for him. His only income was what he received from Social Security and what he received in a small pension. The problem was that his house was paid for–that is, there were no liens on the home and the home was worth much more than what was allowed as an exemption.

This gentleman and his wife lived in their home for almost forty years and had paid off the mortgage. Then, his wife died and the house became his alone. The gentleman retired and his sole income was his Social Security check and his small pension check. Unfortunately, he also tried helping out his adult children by co-signing a couple of vehicle loans and used credit cards to purchase things for his adult children who, no doubt, promised they would pay him back. His unsecured debt was almost $60,000.00. Essentially, this gentleman was asset rich but cash poor.

He had heard that bankruptcy might be an option for him. Unfortunately, I had to tell him that if he filed a chapter 7, the chapter 7 trustee would sell his home to pay his debts. That was not an attractive option. I then had to tell him that if he filed a chapter 13, he would have to pay his creditors in full through his plan. He recognized that he could not afford to do this on his income. Of course, he could do nothing and maybe his creditors would not take any action though we both acknowledged this was unlikely. We also discussed that when the creditors do take action, they are likely to sell his home to satisfy their debt. This gentleman was really running out of options (we discussed a reverse mortgage but he was not interested).

So, what could he have done in retrospect so as not to get himself in this mess. First, never, ever co-sign for any debt unless you can afford to make all the payments. I’m sure his children had the best intentions of making all the payments but the sad reality is, they didn’t and he was left holding the bag.

Second, if he saw that he was getting into debt trouble particularly before his wife died, it would have been feasible to file bankruptcy and exempt their home in full (assuming that there are no joint debts) because in most states, real estate held as husband and wife (called tenants by the entirety) is not subject to the claims of individual creditors. Be aware of life changes and how it can affect your finances.

Bankruptcy can be a powerful tool to help you eliminate debt. Sometimes, it is better to file bankruptcy sooner instead of waiting until the debts keep mounting. If you wait too long, it may not be an option later.

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Adrian Lapas, Esq.

I've been practicing bankruptcy law in North Carolina since 1993, and am certified as a specialist in consumer bankruptcy law by the North Carolina State Bar.
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