Gray Bankruptcies in Illinois

Mostly due to a combination of a shrinking social safety net and rising life expectancy, more older adults than ever experience financial problems. In fact, the over-65 bankruptcy rate has increased over 200 percent since the 1990s. Older Americans are not immune from the financial storms of life, like job loss and serious illness.

A Chicago bankruptcy lawyer gives these people a way out of their financial difficulties. Bankruptcy eliminates debt and. More importantly, protects property from creditor seizure. Property protection often takes on a new meaning in so-called “grey bankruptcy” cases, as outlined below.

Social Security Benefits

Some Americans under 65 receive Social Security Disability benefits. But the government benefits exemption means very little to most filers. However, this exemption could mean everything to many grey bankruptcy petitioners. A significant number of these people depend mostly, or almost entirely, on Social Security benefits to pay monthly expenses.

Perhaps because these checks arrive monthly, many bankruptcy debtors assume these payments are income. Generally, bankruptcy laws do not shield income from creditors. However, Social Security, VA disability, and other government benefits are exempt assets in Illinois.

Because of different income/asset classifications, commingling is sometimes an issue in these situations. It’s hard to separate exempt assets from nonexempt income. So, it’s usually a good idea to keep these funds in separate accounts. Always speak to an attorney before you move money into separate accounts prior to filing bankruptcy.

Home Equity

Illinois has a rather limited $15,000 homestead exemption. Many people over 65 have substantially more home equity than that. As a result, they may hesitate to file a necessary bankruptcy. These individuals are understandably afraid they will lose their homes. But there are several unwritten exemptions which raise the home equity cap.

A tenancy of the entirety is one example. If Wife co-owns the home in this way and Husband files bankruptcy, neither his creditors nor the trustee (person who oversees the bankruptcy for the judge) can touch the house. It’s illegal to seize one person’s assets (Wife’s house) to pay another person’s debts (Husband’s obligations).

The as-is cash value rule is another example. Home investors usually offer pennies on the dollar for no-inspection cash sales. So, if your home’s value is $150,000, its as-is cash value could be as little as $15,000.

Retirement Accounts

Many folks over 65 have 401(k)s, IRAs, or other retirement accounts which have substantial financial values. These accounts have emotional values which might be even higher. They represent future financial security and a reward for a lifetime of sacrifices and savings.

Tax-deferred retirement accounts are exempt in bankruptcy regardless of their financial value. The same is true for other similar accounts, like prepaid college tuition plans, and most pension plans.

To take advantage of this generous exemption, some petitioners accelerate their retirement account contributions in the months before they file bankruptcy. Once again, always speak with an attorney before moving money in this way. These transactions could be considered fraudulent. 

Connect with Experienced Lawyers

Grey bankruptcies involve some 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:

marketwatch.com/story/why-are-so-many-americans-over-65-declaring-bankruptcy-2018-11-06