Some Special Issues in an Over-55 Bankruptcy

Older people are filing bankruptcy at historically high levels, and rising medical bills might be the main reason why. The average over-65 couple accumulates medical bills totalling $275,000, even if both spouses have Medicare. If that wasn’t bad enough, the Supreme Court recently watered down the consumer protections in the Fair Debt Collection Practices Act. So, it is easier for doctors to turn over medical bills to over-aggressive debt buyers.

Many older people file medical bankruptcies after a triggering event, like one too many harassing calls or a civil lawsuit. Bankruptcy stops these adverse actions. Additionally, Chapter 7 bankruptcy gives these debtors the option to repay medical bills on their terms or walk away from them and get a fresh start.

Debt Reaffirmation

Unsecured medical bills are generally dischargeable in bankruptcy. Debt discharge eliminates the debtor’s legal responsibility to pay the debt. But in many cases, reaffirmation is a better option than discharge.

That’s especially true if the doctor, as opposed to a debt buyer, is the creditor. Frequently, doctors do not refer unpaid bills to debt buyers until the patient misses at least two or three payments. A debtor might want to stay in a doctor’s good graces and continue the professional relationship. An unpaid bill obviously makes that impossible, whether or not the debt is legally discharged.

Before reaffirming the debt, attorneys often negotiate with creditors. These negotiations could result in a lower balance due or an easier repayment plan. That’s one of the nice things about bankruptcy. Debtors, instead of creditors, have the upper hand in these negotiations. Creditors know if they do not make a favorable deal, the debtor will discharge the debt, and the creditor will get nothing.

Home Equity

Many older debtors have substantial home equity. The equity exemptions in both Illinois and Indiana are generous, but they may not cover the entire amount. So, many people hesitate to file a necessary bankruptcy.

There is a significant difference between fair market value and as-is cash value, which must be declared on Schedule A. Lawyers sometimes call bankruptcy value garage sale value. For example, owners often sell electronics and furnishings for pennies on the dollar in a garage sale or on a classified site like Craigslist, just to get rid of the item.

Similarly, a home investor might offer pennies on the dollar for an inspection-less home purchase. Arguably, such offers establish a home’s garage sale value. That lower value typically means the exemption is more than large enough to preserve all home equity.

There are other alternatives as well, such as the IRS Quick Sale Value. The Service uses the QSV calculator to determine an asset’s value for back tax repayment purposes.

Social Security Benefits

Generally, bankruptcy does not affect Social Security and other government benefits, even if the debtor receives monthly allotments. According to both the Bankruptcy Code and Social Security Administration, Social Security benefits are exempt assets and not countable income.

That being said, it is usually a good idea to separate Social Security income from non-exempt income, such as wages from a part-time job. Always consult with an attorney before moving any money prior to a bankruptcy filing.

Rely on Tenacious Lawyers

Chapter 7 is often a good option for financially-stressed older adults. For a free consultation with an experienced Chicago Chapter 7 bankruptcy attorney, contact the Bentz Holguin Law Firm, LLC. After hours visits are available.

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