Last month, a depressing statistic was reported by the Consumer Bankruptcy Project: bankruptcy filings by people 65 and older are climbing. At a time when most take to their “golden years” to retire, others are just barely scraping by with meager security nets and ever-increasing healthcare costs. Most elders find themselves working part-time, minimum, or low-wage jobs just to make ends meet.
According to the report, the amount of older people in the bankruptcy system have increased nearly five times in the last few years. The concerning statistic points to a growing trend in the American economy in people that are simply unable to pay back their debts. The report details that the median amount of debt seniors filing for bankruptcy is about $17,390.
Most people, when filing for bankruptcy, end up filing Chapter 7 Bankruptcy also known as “straight bankruptcy” or “liquidation.” In this type of bankruptcy, people are allowed to keep certain kinds of exempt property. Property that is not exempt includes property that has had liens previously applied to them, such as car loans and mortgages, and they will most likely be resold/liquidated to pay the creditors. Most of a person’s debt will be wiped clean under Chapter 7 Bankruptcy, but certain debts are exempt. The exempt debts include property taxes, student loans, child support payments and a few others that must always be paid back.
Bankruptcy stays on an individual’s file for up to 10 years, which can severely affect the individual’s ability to pursue other loans, find a place to live, or purchase items like cell phones. Although, most credit advisors say that bankruptcy only partly affects those who are eligible because by the time they file their credit is already ruined.
Another type of bankruptcy, Chapter 13 bankruptcy, allows people filing for bankruptcy the opportunity to propose a plan of reorganization to get their finances in order to pay their debts. The proposal is sent to the bankruptcy court and approved by them as opposed to the creditors the filer will be paying to. This allows for people with a regular source of income the opportunity to pay their debts under the protection of bankruptcy. In this way, Chapter 13 is different from Chapter 7, as it provides a plan for debt payback as opposed to complete debt eradication or liquidation. Chapter 13 bankruptcy can also be considered to be a form of debt consolidation.
To say these findings are concerning is an understatement. With the number of bankruptcy cases growing due to things like expensive health care costs and reduced incomes comes the threat of this trend only growing. Young adults are going into much more debt, much earlier due to larger amounts of student debt, inflation of the housing market, and increasing healthcare costs. The baby boomer generation is a definite indicator for what’s to come, as millennials outnumber baby boomers by over 1 million people. The age-old advice for financial stability still rings true: don’t spend more than your means.