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Filing for Bankruptcy May Be an Option for the Elderly

Staggering medical bills, rising prescription medication costs, and declining pension amounts, among other factors can lead to a mountain of debt for seniors. Instead drawing down available retirement assets, declaring bankruptcy might be a better option for some.

In basic terms, Chapter 7 bankruptcy enables you to discharge many of your debts. However, nonexempt assets may need to be sold to pay creditors. Chapter 13 bankruptcy allows you to maintain all of your assets as you work out a new payment plan to pay creditors over a 3-5 year period.

IF you have a large amount of equity in your home, you'll need to know how much is protected during bankruptcy proceedings. Amounts vary from state to state. Some states protect the full value of a home; other protect only a small amount, which could lead to the Chapter 7 bankruptcy trustee selling the home in order to pay creditors.

Medical-bill debt can be wiped out under Chapter 7 proceedings. Keep in mind that bankruptcy only eliminates debt that exists at the time of filing.

Almost all tax-exempt retirement plans (e.g., 401(k)s, 403 (b)s, etc.) are safe from bankruptcy proceedings. Social Security and Social Security Disability payments are protected from creditors, with a few exceptions (e.g., certain tax-debt obligations).

If you have very few assets and little income other than Social Security, creditors don't have much to sink their teeth into. Filing for bankruptcy might not even be necessary.


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