Does it ever make sense for a retiree to file for bankruptcy?


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Filing for bankruptcy protection is a big decision for anyone, but for older people, it also raises some unique concerns. Many older adults have a lot of equity in their homes, something worth protecting, but that could be threatened in certain Chapter 7 bankruptcies. 

If you’re an older adult, it’s important to consider all your options and know what’s at risk before filing for bankruptcy.

Is bankruptcy possible?

“When someone comes to me asking about bankruptcy, I would ask ‘What’s driving you? What’s the pressure point? What are your vulnerabilities and what are your goals?” says bankruptcy attorney Robert Haupt. 

This is especially important to ask for seniors, because their situations are usually different than younger adults. If they own their homes, they likely have a lot more equity in their home. Which means they could have more to lose in the case of a Chapter 7 bankruptcy if their equity isn’t protected. (Related: What happens when you file bankruptcy?)


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One scenario that would make the value of filing for bankruptcy protection questionable for seniors is if there’s simply nothing for a creditor to take. If you’re retired and don’t have much income, this might apply to you. It could mean you are “judgment-proof.” Creditors generally can’t access assets like your Social Security benefits, retirement accounts or things you need to maintain a home like household goods. 

“Retirement funds are protected, Social Security benefits are exempt — they can’t get them,” says Haupt. “Virtually anything IRS recognizes as tax exempt is going to be exempt to a certain level.”

There are a few exceptions. If you’re withdrawing your retirement funds, that may be a problem: they are treated as income in the context of bankruptcy qualifications and lose protection once withdrawn. If your retirement funds are in the same account as retirement funds that were withdrawn, the Social Security funds will lose that protection, too, Haupt says. “You do need to segregate these Social Security funds,” says Haupt.

If it ends up there’s nothing for creditors to take, then bankruptcy doesn’t really make sense. “Creditors want their money, If you can convince them there’s nothing to get — most of the time they’re not punitive,” Haupt says. 

The reverse situation is true, too. If you have too many assets, you might not benefit from bankruptcy. If you own assets that aren’t protected from creditors, the chances are very high you would lose them in a Chapter 7 bankruptcy. You would probably be able to keep your home with a Chapter 13 bankruptcy repayment plan, but a Chapter 13 bankruptcy is also a longer, harder process. (Related: How often can you file bankruptcy?)

The biggest issue with a Chapter 7 bankruptcy is likely to be protecting your home equity. Homestead exemptions — which determine how much home equity you can keep in a Chapter 7 bankruptcy — vary by state. 

“States like Missouri or Illinois are not consumer friendly states to file bankruptcy in,” Haupt says. The benefits of filing for bankruptcy in one of these states can be greatly diminished, he says. 

When should older adults consider bankruptcy?

So in what scenario might it be a good idea for an older adult to file for bankruptcy?

“I always say ‘You don’t file bankruptcy when you want to, you file when you have to,’” Haupt says. “I always discourage it until it’s absolutely necessary.” 

That threshold will depend on a lot of factors. But as a general rule of thumb, if the debt is strongly impacting your quality of life, bankruptcy might be a solution.  (Related: How often does bankruptcy stay on your credit?)

“Some people have a really low tolerance of stress,” Haupt says. “If they’re losing sleep, it might be time to file.”

It’s also worth looking at the kind of debt you’re looking to discharge. Medical debt and credit card debt are two of the most common reasons to file for bankruptcy, and they are some of the easiest debts to discharge. Sometimes Chapter 7 bankruptcy can help wipe these debts out in a matter of months, Haupt says. Debt collectors also by law have to stop calling once you’ve filed for bankruptcy, which could bring you more peace of mind.

What are some alternatives to bankruptcy?

If you’ve determined that bankruptcy isn’t right for you, you have other options for dealing with your debt. Haupt dislikes debt consolidation because it still involves borrowing money.

“Settlement and negotiation can be good options,” says Haupt. “Creditors know they’re not suing a large bank — they’re only going to collect so much, and they prefer as little fuss as possible. If you act with integrity and have a good negotiation, you can get by without filing for bankruptcy.”

If you’re an older adult considering bankruptcy, figure out your financial goals, take stock of all your assets, and talk to a reputable professional to answer your questions. (Related: Debt settlement vs. bankruptcy)

This article originally appeared on Resolve and was syndicated by

How to bounce back from bankruptcy

Each financial situation leading to bankruptcy is different, but the end result is often the same: your credit is ruined and you’re facing up to 10 years of having a bankruptcy on your credit report. But you get a potentially debt-free fresh start and the opportunity to avoid any potential money mistakes of your past.

You can now focus on bouncing back after ruining your credit and putting the financial pieces of your life back together. These 11 important steps could help you build good financial habits so you can rebuild your credit.

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If you know what led to your bankruptcy, you know what actions and habits to avoid in the future. This may not apply if you racked up debt from a serious medical condition or something similar that was out of your control. But spending more than you can afford or mismanaging your finances can quickly lead to bankruptcy if the unexpected occurs.

This could include losing your job or getting divorced. An unexpected financial strain may have caught you off guard, but you can prepare better this time around. Include an emergency fund in your financial plans, as well as other solutions for past bad habits.

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It’s especially important to frequently check and monitor your credit report after a bankruptcy. This will give you a starting point for where you are and a measuring tool for how much you’re progressing in the future. It’s also vital to make sure you read your credit report to spot any potential errors.

Disputing credit report errors can help you remove obstacles that may be blocking your credit rebuilding process. As you get errors fixed and continue to monitor your report, be sure to check your progress at the same time. Your credit report directly correlates to your credit score, so when you see positive information being reported, it’s likely your score is improving too.

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Setting and sticking to financial goals will help you correct bad money habits and might even help you cope with financial stress. If you have clear and realistic short- and long-term goals in mind, it can be easier to focus on changing your financial situation.

Your goals will be unique to your situation, but they could include a long-term goal of growing your credit score to 600 or more. This goal may involve multiple short-term goals, one of which may be slowly introducing credit products back into your life.

Remember to keep track of your goals so you can see how far you’ve progressed and get the motivation you need to continue pushing forward.

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On-time payments play a big role in positive credit history, accounting for 35% of your FICO® score, which is one of the most widely used credit scoring models. If you want to make sure you don’t miss any payments, consider using the automatic payments feature.

Autopay is typically available for most bills and lets you set a date each month to automatically pull funds from a linked bank or credit account to pay your bills. This can help you avoid missed payments and work toward rebuilding your credit.

Creating a budget can help you learn how to pay off debt by putting limits on your overall spending. This typically involves adding up all your monthly income and expenses and seeing where you can cut down on spending. When you understand where your money is going, it can be easier to make adjustments and stay on track with financial goals.

There are several budgeting styles ranging from basic to complex, but the budgeting process can be as simple as setting aside income for necessities, including groceries and utilities, and then putting away some of what’s left into savings.

It may also be worth thinking about placing your money in a high-yield savings account. The best savings accounts offer higher-than-average interest rates that could help grow your funds over time.

Financial opportunities might be slim after a bankruptcy, which is why it could make sense to seek financial guidance from a reputable credit repair company. The best credit repair companies might help you get negative items removed from your credit report, which can potentially increase your credit score. Some also offer valuable financial guidance, which may help you get your finances back on track. Keep in mind that credit repair services cost money, so weigh the pros and cons of using them before making a decision.

Setting up autopay can help you avoid missed payments and work toward developing a positive payment history. But if you want to take it one step further, consider using a tool like Experian Boost™ to get better credit scores.

Experian Boost is a free service from Experian, one of the three major credit bureaus, which may help boost your FICO® Score with positive payments on common expenses. This could include utility bills, your Netflix payment, and your phone bill. If you aren’t able to use credit products to grow your credit, Experian Boost offers a convenient alternative to get positive payment information on your credit report.

Your credit score will be hurting after a bankruptcy, which means you likely won’t qualify for the best interest rates on credit cards or loans. It may be tempting to take out a loan if you need some money, but payments on high-interest loans can be hefty and you might not be able to keep up. This could easily set you down a path to end up in debt again and harm your credit even more.

If you’re losing sleep over money, be sure to have a plan in place before deciding to go with a high-interest loan. You need to be certain you can make the payments and that the lender is reputable and easy to work with. But overall, it’s likely not worth taking out a high-interest loan unless you have no other alternatives.

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Credit-builder loans aren’t like your typical personal loan where you borrow money and pay it back with interest over time. Instead, these loans often hold your borrowed money until it’s fully paid off and then release it to you. So if you need money quickly, this probably wouldn’t be the avenue to take. But if you want to build your credit history, a credit-builder loan could make a lot of sense.

As you responsibly pay off the loan, your positive payment history is reported to credit bureaus to help increase your credit score. This is an opportunity for building your credit history when you can’t qualify for other credit products.


Secured credit cards can also help you build your credit history if you have poor or no credit. These cards typically require a refundable security deposit to qualify, which will act as your line of credit on the card. So if you deposit $300, you would have a $300 line of credit.

The best secured credit cards report your on-time payments to credit bureaus to help improve your credit score. In addition, they function just like typical credit cards, so you shouldn’t have any issue using them to make everyday purchases in stores or online.

Certain secured credit cards may offer you higher credit limits over time or give you the opportunity to upgrade to an unsecured credit card. This means the security deposit restriction would be removed and the deposit refunded and you would get a typical line of credit.

Your credit score may tank after bankruptcy, but you’ll still have options for rebuilding your credit with different credit products. This includes credit cards for poor credit, with more than a few options to choose from. You have to expect any rewards earning potential on these cards to be rare, and some of them may have annual fees or security deposits. But to get back to pre-bankruptcy levels of credit, you have to start somewhere.

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Bankruptcy isn’t the end of the road for your finances. In fact, it’s far from it. These tips can help you get back on track by giving you actionable steps to take immediately following a bankruptcy. It might be difficult to see where you can end up over time, but setting short- and long-term goals can help you track your progress and push forward.

If you’re thinking about filing for bankruptcy, remember to weigh the pros and cons of bankruptcy in your life before making a decision. It will likely ruin your credit, so you’ll have to rebuild your credit history from the ground up. But it can help eliminate eligible debts at the same time. Considering these and other factors can help you make the decision that makes the most sense for your financial future.

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