How Debt Can Force Difficult Decisions for Retirees

Bankruptcy is often viewed as a last resort for those facing severe financial difficulties. But what if you’re 80 years old, saddled with over $100,000 in medical debt, and solely reliant on Social Security? The choices are far from simple. Some seniors opt to carry their debt to the end of their lives, seeing no viable alternatives.

While bankruptcy is perceived by many as a fresh start, it doesn’t always deliver that promise.

In the aftermath of the pandemic, consumer debt has surged, putting more seniors at financial risk. The Consumer Bankruptcy Project (CBP) has tracked bankruptcy filings for over a decade, revealing that individuals over 65 now represent a growing proportion of filers, accounting for about 13%. Their report, “The Graying of U.S. Bankruptcy,” found that the average age of older filers was 70, with some as old as 92, and an average debt exceeding $100,000.

Many seniors filing for bankruptcy report owing more than they receive from Social Security. To escape these overwhelming medical bills, they make the difficult decision to file.

The study found that the median income for seniors filing for bankruptcy was $37,000, with unsecured debt exceeding their annual income. Realizing that they will likely never be able to repay their debts, these seniors typically file for Chapter 7 bankruptcy, which eliminates debt, rather than Chapter 13, which restructures it.

The primary benefit of bankruptcy for seniors is the emotional relief from harassment by debt collectors. The stress of seeing mounting bills each month can be significant. However, bankruptcy is not a cure-all. Seniors in this age group have limited income opportunities and may continue to accrue medical bills and credit card debt.

Post-bankruptcy, the inability to access credit can impact retirees’ finances. Even if you’re not looking to buy a new home, credit scores can affect your ability to borrow in emergencies and even influence your auto insurance rates. Research indicates that about 30% of seniors were as bad off or worse after bankruptcy due to chronic illness and the inability to work, leading to more debt accumulation.

Bankruptcy is a personal decision that sometimes provides a fresh start. However, many seniors may not realize that the same debts discharged in bankruptcy can also be discharged upon death. Creditors cannot access retirement funds and can only place a lien on a house without seizing it.

Though this option may seem grim, Chapter 7 remains a last-resort measure. A 2016 Experian report showed that 73% of Americans die in debt, suggesting that tackling debt aggressively may be futile depending on one’s financial situation.

Of course, we hope you never face such tough choices regarding debt. To avoid bankruptcy or dying with debt, work with us to create a retirement plan that secures your financial future.