Our golden years are meant to be spent relaxing and enjoying time with our families. Retirement leaves time for so many things that people may have been too busy for in their working years. But it also usually means living on a restricted income, potentially without the ability to re-enter the workforce. And with the cost of living continuing to skyrocket, it's easy to imagine how a senior could end up in debt despite a lifetime of careful planning. What should a senior keep in mind when considering chapter 7 or chapter 13 bankruptcy in Avondale, Arizona? Read on for more discussion on this topic. To schedule your free appointment to speak with an experienced Avondale bankruptcy lawyer, call 623-399-4222.
Social Security Benefits in a Bankruptcy Case
Many seniors live off of Social Security retirement benefits, which they have earned over the years. These benefits typically aren't enough for a lavish lifestyle, but they can support a retiree after they have left the workforce. Social Security benefits won't disqualify someone from chapter 7 bankruptcy. In fact, those funds don't even count as income for bankruptcy income qualification purposes. That makes it straightforward for a senior citizen to qualify for chapter 7 bankruptcy by comparing their household income to the state median household income. It makes it more difficult to qualify for chapter 13 bankruptcy, as it requires sufficient disposable monthly income to pay off debts over the course of three or five years. And all that may be beside the point if the person lives solely off of Social Security benefits, which are protected from most creditors anyway. A senior citizen on limited income with exempt assets may not actually need official debt relief. They should have their situation reviewed by an honest bankruptcy professional who will tell them truthfully if it is worth it to file.
Qualifying for a Filing Fee Waiver
The filing fee to file for bankruptcy in Avondale is not insignificant. The court charges a filing fee of several hundred dollars for both chapter 13 bankruptcy and chapter 7 bankruptcy. This is a considerable amount for someone who is on the verge of declaring bankruptcy, and even more so if they are living on a limited income. The good news is that some senior citizens on a fixed income may not have to pay it all at once, or at all.
A fee waiver is a form that a person engaging in a legal matter can fill out and file to request that the court excuse them from paying the filing fee associated with the case. Sometimes, the court will allow a bankruptcy debtor to pay their filing fee in installments, and other times, the court will fully excuse the debtor from paying the filing fee. A full waiver is only available in chapter 7 bankruptcy, and only when the debtor's household income is below 150% of the federal poverty guidelines and they cannot afford to pay the fee in installments. Because Social Security benefits are often a senior's main source of income, many retirees on a fixed income may fall within that limit. The court reviews each application based on the debtor's full financial situation.
Are Retirement Savings Protected in an Arizona Bankruptcy Filing?
One of the utmost concerns for a senior citizen considering bankruptcy is likely their retirement savings. Not all assets are protected in bankruptcy, and those that aren't are liquidated to repay creditors. When the trustee sells them at auction, they get to keep a portion as their payment. Investment accounts are even simpler for a bankruptcy trustee to liquidate. But the good news is that most retirement savings accounts are protected when a debtor in Arizona files for bankruptcy. If they weren't, it would force many debtors to become wards of the state in their elder years at taxpayer expense.
There are some limitations to protections for retirement savings accounts in bankruptcy. Traditional and Roth IRAs are protected up to a federal cap, which is set well above a million dollars and adjusted every few years. Commercial annuities are commonly exempt in bankruptcy in Arizona, although there can be exceptions. SEP and Simple IRAs are fully protected under federal bankruptcy law. So are employer retirement plans such as 401(k)s, 403(b)s, and 457(b)s, many of which are also covered by ERISA. This vast protection for retirement savings should be kept in mind when a person is deciding between withdrawing from these accounts to pay off debts or filing for bankruptcy. That withdrawal can trigger income taxes, plus penalties for anyone under age 59 and a half, and will have been a waste if the debt could have been discharged in a later bankruptcy filing.
Reverse Mortgages for Senior Bankruptcy
A reverse mortgage is a special type of loan only available to homeowners who are at least 62 years old. Here, some or all of their home's equity is converted into cash either through a lump-sum payment, monthly payments, or a line of credit. The homeowner remains responsible for costs like property taxes, maintenance, and homeowners insurance. The balance of the loan goes up over time, but payments are taken out of the home's equity rather than monthly mortgage payments. The loan becomes due when the homeowner moves out, sells the home, or passes away. Typically, someone who inherits a house with a reverse mortgage will sell the home or let it go to the bank rather than pay off the loan, which can be quite large by that time.
A reverse mortgage can have interesting implications for a bankruptcy filing. Some bankruptcy debtors may be reluctant to file for bankruptcy over concern about whether their home is protected by Arizona's homestead exemption. Having a reverse mortgage reduces their equity stake in the home, which can make it easier for the remaining equity to fall within that protection. However, cash already paid out from a reverse mortgage may not be covered by the homestead exemption once it leaves the home, so it is important to review how those funds are held with a bankruptcy attorney before filing. Also, filing for chapter 7 bankruptcy won't stop a foreclosure if the homeowner fails to pay taxes, HOA dues, etc. Here, chapter 13 bankruptcy to pay back these debts over time could be an option to save the home, although it is a costly commitment for someone in their senior years.
Need More Information to Help Make Your Decision About Bankruptcy? Discuss Chapter 7 or Chapter 13 With a Member of Our Avondale Bankruptcy Team Today
Bankruptcy has long-term consequences, which should be a consideration for someone in the later years of life. There is less flexibility to recover financially if a bankruptcy debtor is already in retirement. But there are also positives to filing for bankruptcy as a senior in Avondale. Qualifying can be more straightforward, and the debtor may be eligible for a filing fee waiver. Their Social Security benefits and retirement savings accounts may be protected in their bankruptcy filing. And it's never too late to clear the slate and improve one's finances. In the same vein, a senior citizen bankruptcy debtor may have so many protections that it may not be worth filing for bankruptcy at all. The best way to know for sure is by discussing your situation with an experienced Avondale bankruptcy professional. Our dedicated staff and attorneys work hard to make bankruptcy as seamless as possible for our clients. The first step to clearing debts to improve your financial situation is as easy as making one phone call. Schedule your free consultation with Avondale Bankruptcy Lawyers today at 623-399-4222 for more information.