Special Issues In An Indiana ‘Grey Bankruptcy’

Medical bills are one of the leading causes of bankruptcy filings among all age groups. But this problem is especially acute for people over 55.

The number of filers in this age group has doubled since 1994, even as overall bankruptcy filing statistics have fallen significantly. Even if they have medical insurance or Medicare, these expenses are often overwhelming. The average retiree accumulates about $275,000 in medical bills. Medicare does not pay for many routine doctor visits, and it only covers 80 percent of the services that it does pay for.

To avoid bankruptcy, experts suggest a medical savings account or a large emergency fund. But it’s not easy for most people to save this kind of money.

Can Older Adults in Indiana Qualify for Chapter 7

Most people with high unsecured debts, like medical and credit card debt, prefer to file Chapter 7 liquidation. However, the 2005 bankruptcy reform law put some restrictions on Chapter 7 eligibility. These restrictions are normally not a problem for families, but they can be an issue for people with reasonably healthy incomes and no dependents.

Generally, to file Chapter 7, the debtor’s household income must be below the state average for that household size. For a family of two in Indiana, that’s $60,657 as of May 2018. If both spouses work full time, the family probably earns more than that.

The key word here is “generally.” The given figure is an average one for the whole of Indiana. It is much more expensive to live in a place like Indianapolis than it is to live in a place like Kentuckiana. An experienced attorney can legally modify the information on the means test form to reflect this economic reality. Perhaps more importantly, a really good lawyer can make these changes in a way that raises no red flags.

The household size is rather hard to determine as well. Over five million children live with at least one grandparent. The actual number may be even higher, because the Census Bureau usually defines “lives with” as “has legal custody of”. Many people take care of their grandchildren on the weekends or for extended periods of time. Sometimes, both the grandchild and the child’s parent lives with the grandparents.

Once again, an attorney can adjust the family size to reflect the true household makeup. A lawyer can also be a forceful advocate for you when needed. These are services that a do-it-yourself bankruptcy package or a non-attorney petition preparer cannot provide.

Older Adults in Indiana and the Homestead Exemption

Indiana’s home equity exemption is $28,600 for a married couple. That’s one of the lower homestead exemptions in the country, and Hoosiers cannot use federal exemptions. So, if the house has equity over that amount, the judge could theoretically force a sale.

People who have owned their houses for more than fifteen years or so usually have a significant amount of equity. They quite understandably do not want to use that equity to pay doctor bills.

There is usually a way out. Older homes may have more equity, but they also usually need some work. The Bankruptcy Code requires debtors to declare the as-is cash value on Schedule A. Especially with regard to an older home, the tax appraisal value is usually not the fair market value. The home investor value is probably more accurate. Most of these companies pay between 50 and 60 percent of the tax appraisal value for an as-is cash sale.

Assume that the debtors have a $150,000 home with $30,000 in equity. If the as-is cash value of that home is $75,000 (50 percent), that leaves a maximum $45,000 to distribute to creditors after the debtors receive their equity. The actual amount will probably be much less. The trustee must seize the home, secure it, make repairs, enhance its curb appeal, and assume other financial risks. Most trustees do not want to take these steps, especially when each creditor would only get a fraction of the balance owed.

Connect With Experienced Lawyers

Even people with large incomes and significant assets may be eligible for Chapter 7. For a free consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. Convenient payment plans are available.

Resource:

fool.com/retirement/2017/12/16/more-retirees-than-ever-are-filing-for-bankruptcy.aspx