Special Issues in a Grey Bankruptcy
Since 1990, a combination of political and economic forces have lowered the bankruptcy filing rate significantly, at least from an overall perspective.
But a combination of these forces have had the opposite effect on older Americans. Since 1991, the number of bankrupt Americans over 65 has more than tripled. In the early 2000s, a series of court rulings, including one from the Supreme Court, made it harder to win age discrimination in employment cases. So, many older people are more likely to lose their jobs. Economically, medical costs have risen significantly while government benefits have remained the same or diminished slightly.
When people over 65 become buried under unsecured debts and need to file Chapter 7, they often face some unique issues. Some of them are discussed below.
Home Equity
Many debtors over 65 have lived in their homes for several decades. In many cases, as they paid off their loans, the real estate’s fair market value increased. As a result, many of these owners have equity shares that exceed the state caps in Indiana and Illinois. But an experienced Chicago Chapter 7 bankruptcy attorney may be able to work around this problem and allow seniors to more easily keep their homes.
Assume the Rothsteins have $100,000 of equity in their $200,000 Chicago home. That’s well above the $30,000 equity exemption cap in Illinois. But in Schedule A, the Rothsteins must declare the as-is cash value of all their assets, including their home. That figure could be substantially different from the fair market value. Most home investors offer roughly fifty cents on the dollar. Arguably, therefore, the home’s bankruptcy value is only $100,000. If the trustee (person who oversees the bankruptcy for the judge) seized the Rothstein’s house, s/he would be unable to pay off the remainder of the loan and give the Rothsteins their protected equity share.
Approaches like this one are very complex, and only an experienced attorney should handle this matter.
Social Security Benefits
Even if you receive a monthly benefit check, federal law makes it clear the Social Security money is an asset and not income. As a result, debtors can list this money as an exempt asset on Schedule A as opposed to an income line on Schedule I.
There are some other considerations on the other side of the coin. For example, if the debtor commingles Social Security money with employment income money, it could be hard to separate the two and determine what money is exempt and what money is nonexempt. Additionally, debtors must list Social Security money on the means test, which is the income qualification test for Chapter 7.
Retirement Account
Many people over 60 have substantial home equity accounts and also rather large 401(k)s, IRAs, and other retirement accounts. The Supreme Court recently addressed this point. The Justices clarified that earned retirement accounts are 100 percent exempt. It does not matter how much money is in the account.
However, debtors who anticipate filing bankruptcy should avoid the temptation to increase the retirement account contributions and decrease the balances in their checking accounts. Such transfers could be considered fraudulent. Once again, an attorney should examine the matter before you move money.
Count on Experienced Lawyers
Bankruptcy debtors over 65 often face special issues. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We routinely handle matters in Illinois and Indiana.
Resource:
wsj.com/articles/bankruptcy-filings-surge-among-older-americans-1533641401
