Specific Issues in a Grey Bankruptcy

Overall, the bankruptcy filing rate has declined significantly since 2007. But that’s not true about over 55 bankruptcies. These grey bankruptcies have doubled since the 1990s. Today, about a fifth of bankruptcy debtors are over 55.

Generally, most people in this age range file Chapter 7 bankruptcies. Also generally, these individuals file to take advantage of debt discharge and the Automatic Stay. Chapter 7 eliminates most unsecured debts, like medical bills. And, Section 362 of the Bankruptcy Code stops adverse actions, like lawsuits and wage garnishment.

Filing bankruptcy does not mean failure. That connection only applies in board games like Monopoly. Bankruptcy, and specifically Chapter 7, simply lets people hold onto what is theirs instead of giving huge sums of money to credit card companies.

Social Security Benefits

Many people over 55, and especially people over 65, hesitate to file bankruptcy because they are afraid it will affect their Social Security benefits. This fear is legitimate. Most retired people count on Social Security for most of their income. This fear is also unfounded.

Generally, bankruptcy does not affect financial assets. And, even though benefits come in monthly installments, Social Security payments are an asset. They are not income. Bankruptcy judges and the Social Security Administration almost universally take this position.

Furthermore, this particular exemption is not amount-based. Social Security benefits are 100 percent exempt. Additionally, the type of benefits does not matter. Both Social Security Insurance payments, which are usually age-related, and Social Security Disability payments are completely exempt.

All that being said, Social Security recipients must normally take some precautions. It’s usually a good idea to put Social Security money into a separate account. So, the funds are not commingled with wages and other payments. Always talk to a bankruptcy lawyer before moving any money in this way.

Retirement Accounts

Frequently, a 401(k), IRA, or other retirement nest egg is a debtor’s largest asset. Like Social Security benefits, all retirement accounts are 100percent exempt. The Supreme Court recently reaffirmed this principle in 2014’s Clark v. Rameker. In addition to the aforementioned defined contribution plans, this exemption also includes most defined benefits pension plans.

Once again, if you withdraw money from a retirement account, it may be a good idea to place this money in a separate account.

Home Equity

In Illinois, this exemption is value-based. Joint bankruptcy debtors may exempt up to $30,000. Keep in mind this is the amount of equity and not the home’s fair market value. If this ceiling is too low, there are some options.

Debtors must list the home’s as-is cash value on Schedule A. Most home investors initially offer about ten or twenty cents on the dollar for a no-inspection cash sale. So, a home’s bankruptcy value might only be a fraction of its fair market value. This difference could help protect home equity.

Retitling the house to a tenancy in common might be an option as well. If one spouse files bankruptcy, Illinois law forbids bankruptcy trustees, or anyone else, from seizing a jointly-held asset to pay one party’s debts.

Count on Assertive Lawyers

Bankruptcy gives people fresh starts while they retain most or all of their assets. 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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