As seniors face dwindling retirement funds, bankruptcy can be an intimidating but life-changing option. This may be especially true for seniors who own homes, rely on Social Security benefits, or worry about their estate. While bankruptcy can offer much-needed relief for seniors, looking at the unique considerations and potential consequences is essential.

Are My Retirement Accounts Protected?

In their golden years, many seniors may depend on a stable source of income from their retirement accounts. The good news is that these accounts are legally protected even in the event of filing for bankruptcy under any bankruptcy chapter.

Under Chapter 13, you generally get to keep your assets because you participate in a repayment plan, leaving your retirement accounts untouched. Under Chapter 7, even if you liquidate your assets, everything in your retirement accounts is yours. Your 401(k)s, 403(b)s, profit-sharing and money purchase plans, IRAs, and defined-benefit plans are safe. However, traditional and Roth IRAS are protected up to $1,245,47.

What Happens To My Government Benefits?

Your social security benefits may also be valuable income during your later years. Social Security Disability and benefits are protected when you file for bankruptcy. Bankruptcy law does not count any social security disability and benefits toward your qualifications for Chapter 7. Under Chapter 13, however, your Social Security income will be considered when creating your income repayment plan. Meaning you may owe more under your Chapter 13 plan.

What Happens To My Home and Car During Bankruptcy?

Under Chapter 7, depending on the equity in your home, you may have to liquidate or sell your home to pay off creditors. Your state homestead exemption sets the limit on how much you can have in equity before turning your home over to creditors. Unfortunately, most seniors have either paid off or contributed significant payments toward their home, so a trustee may sell it to pay off their debts. If you are behind on your car payments or if you have significant equity in the car, your vehicle may also be taken to pay off your debts.

Depending on your situation, a lawyer can fight for you to keep your home or car.

Under Chapter 13, as long as you are not behind on your home or auto payments, you will not have to give them up. You generally will not have to sell any of your assets unless it’s needed for your payment plan.

How Bankruptcy Affects Estate Plans

For seniors who want to leave something behind for their loved ones, bankruptcy may disrupt whatever you leave behind in your will. If you still have outstanding debt upon your passing, your trustee will prioritize paying off your debts before distributing your gifts or inheritance. Under Chapter 7, your trustee will continue to sell your assets to pay off your debt. However, under Chapter 13, your heirs will be responsible for petitioning the bankruptcy court for their next steps. Sometimes, the court will allow your heirs to discharge the remaining debt, but in other cases, they will have to pay it back for you.

When Seniors Should Consider Filing

Typically, bankruptcy may be best for seniors who do not own a home or a lot of property. Seniors can ask themselves a couple of questions to figure out if bankruptcy is the best path such as:

• Can you discharge the debts you’re hoping to discharge?
• If you have some extra assets and had to give them up, would the debts discharged be worthwhile? Some debts cannot be discharged. If the debts that can be discharged are very little, it may not make the bankruptcy filing cost worth it.
• Can you afford monthly payments under Chapter 13?
• If you filed for Chapter 13, would it help you catch up on payments for your house or car? If you answered "yes," this could be a big reason to consider filing.
• Are your medical or credit card debts too difficult to manage?

If any or all of these apply to you, bankruptcy might be worth considering. However, review your financial situation and any alternatives before making a decision. Consulting a bankruptcy lawyer who can assess your assets and debts can also help you decide.

When Seniors Should Not File

While bankruptcy can free many from debt, it may not be the best option for some seniors. Here are some situations where seniors shouldn’t consider filing for bankruptcy:

When you have too many valuable assets. Under Chapter 7 bankruptcy, a senior may lose most of the possessions they worked hard for their entire life. If you own a home or have a lot of equity in one, you could be forced to sell it to pay off your creditors. If a senior filed under Chapter 13, they can keep their property. But it is important to note that you will have to make high monthly payments for a few years to pay back the value of your property.

When a senior has too few assets. If a senior only has the bare necessities, you may have nothing for creditors. Filing for bankruptcy may be unnecessary under “judgment proof”.

The Bottom Line

Seniors have the power to take control of their finances and make smart choices about bankruptcy after carefully weighing its pros and cons. It is never too late to get a handle on your finances, and bankruptcy just might provide the relief you’ve been searching for.