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Considerations for bankruptcy after retiring

On Behalf of | Nov 4, 2020 | Bankruptcy

Financial challenges in retirement have become more common, even among those who begin with assets put back to sustain them.

According to Forbes, the rate of bankruptcy filings among people 55 and older is on the rise.

More older bankruptcy filers than in prior generations

Data from a recent research study show that new bankruptcy filings among people between 65 and 74 years old increased by 204% from 1991 to 2016. Filings among people aged from 55 to 64 rose by 60% in that same 25-year period. Seniors aged 65 and older make up about 12% of all bankruptcy filers.

The study identified health care costs as a factor in 60% of bankruptcy filings by consumers aged 65 and above.

The bankruptcy means test

As explained by SmartAsset, a person must qualify for a bankruptcy plan. This qualification process, the means test, includes an evaluation of income, assets, liabilities and expenses. One thing that may help some retired people qualify for the bankruptcy protection they need is that their Social Security benefits do not count as income for eligibility purposes and may not interfere with their ability to pass a means test.

Those with income above the limit for Chapter 7 bankruptcy may still have the option to file for Chapter 13 bankruptcy.

Exemptions and retirement savings

Another positive fact for retirees is that employer-sponsored retirement savings accounts, such as 401(k) accounts, fall under exemptions in bankruptcy, so filers can retain these retirement savings. Other accounts, such as IRAs, may be exempt up to a certain amount.

Often, exemptions also cover vital assets such as a home, a vehicle and many personal possessions.