No one wants to face retirement while managing an avalanche of debt, and coming to terms with the realities of your debt can be intensely painful. The harsh reality is that, if you cannot pay your debts, you’re better off filing for bankruptcy now rather than waiting for retirement. Although bankruptcy is still most prevalent among middle-aged groups, seniors are the fastest-growing share of bankruptcy filers. There’s no shame in filing, but before you do, you need to know what you’re getting into.
You’ll Need Credit Counseling
Credit counseling can be immensely helpful for better understanding how you got into debt and what you can do to get out. New bankruptcy laws actually require bankruptcy filers to pursue credit counseling, so ask around for a recommendation. Sometimes credit counseling agencies try to pressure you into so-called debt management plans. With such a plan, your debt is pooled into a single payment, making it easier to pay off. This can be a wise strategy for some people, but for others, it’s simply unworkable. Don’t cave into pressure, and seek independent financial advice or the counsel of a lawyer if you’re not sure what to do.
You Might Not Have to Pay All of Your Debts
The Fair Debt Collection Practices Act requires debt buyers to allow you to verify that you actually owe a debt before paying it. If they can’t provide validation, you can dispute the debt and don’t have to pay it. Likewise, debts that are outside of your state’s statute of limitations do not have to be paid, and lenders cannot report information that is older than seven years old on your credit report. If your debts are very old, you might be better off not paying, since a payment can reset the statute of limitations. Once you pass this limit, there’s no reason to pay, and no need to file for bankruptcy.
Bankruptcy Could Affect Your Retirement Funds
Depending upon how much debt you have, your creditors could tap into your retirement savings—but only if you’ve saved more than $1.1 million. Seniors and would-be retirees are able to keep up to this amount in their retirement accounts, and can also keep the homes in which they live, their businesses, and their vehicles. Property in excess of this could help pay your bankruptcy settlement, but only your bankruptcy lawyer can give you an accurate assessment of your potential liabilities. This is why it’s so important to consult an attorney before filing.
You Have Options if You Are Disabled
If you are totally and permanently disabled, you may be able to discharge your student loan debt—something even a bankruptcy filing cannot typically do. For seniors who went back to school late in life, this option can save tens of thousands of dollars, and may even eliminate the need to file for bankruptcy. Be careful with companies that promise you “disability grants” to get out of debt, since these organizations often scam seniors. When in doubt, consult a lawyer or financial advisor.