Page Law Firm

Free consultation for consumer bankruptcy clients

Call Us214-618-2101

Proudly serving Frisco, Texas and surrounding areas
Facebook Twitter LinkedIn
Subscribe to this list via RSS Blog posts tagged in retirement plan

Do Your Parents Need to File for Bankruptcy?Mother’s Day is coming up this Sunday, and many adult offspring may be wondering what they should do to celebrate the occasion. One nice gesture could be to offer to help your parents with their finances in case they are having trouble with debt, which has become an increasing problem for older adults. According to recent studies, the number of adults age 65 and up who have filed for bankruptcy has tripled since 1991. Your parents may not want to burden you with the knowledge that they are struggling with debt, but their ability to support themselves may be at risk if they do not try to alleviate their debts.

Systematic Problems

One reason that some older adults do not tell others about their financial problems is the social stigma attached to being heavily in debt. There is a misconception amongst some people that personal debt is mostly the result of poor financial decisions. However, many economists have concluded that the rising debt among older adults is because of systematic changes to retirement and healthcare over several decades that have shifted costs and risks to individuals:

  • Many employers have switched their retirement plans from company-backed pensions to 401(k) plans.
  • The age at which people can qualify for Social Security has risen.
  • Health insurers are expecting the insured to pay more of their own medical expenses, while the average cost of those expenses increases.

With these changes, older adults may be forced to take on debt in order to pay for basic expenses, which can make them vulnerable if they have a sudden decrease in income or increase in expenses.

...

Why You Should Not Withdraw from Your Retirement to Pay DebtsWhen you are going through a financial crisis, your focus is on meeting your immediate needs and not your long-term savings. The coronavirus outbreak is creating a financial crisis for the people who have lost their jobs or seen a reduction in their income. It is understandable to justify withdrawing money from your 401(k) if you need to pay your mortgage or a vehicle loan. The Coronavirus Aid, Relief and Economic Security Act (“CARES Act of 2020”) has made it easier for people to withdraw from their retirement accounts. People younger than 59 ½ years old will temporarily be allowed to withdraw up to $100,000 from their 401(k), 403(b) or Individual Retirement Account (IRA) without a 10 percent penalty or borrow up to $100,000 with a longer repayment period. Even though there is no penalty for withdrawing, this is still a taxable event, but the taxes can be paid over a three-year period, rather than all at once next year. However, you should consider other options, including bankruptcy, before you make a withdrawal that could jeopardize your retirement. You lose the time value of your invested funds working for you over a 20 or 30 year period.  

Relief for Consumers

The CARES Act of 2020 includes several provisions that may help you with your debts and personal expenses. Most people know about the one-time payout of $1,200 that most individuals will receive, but the law also:

  • Adds additional funds and weeks for unemployment
  • Provides foreclosure moratorium for 60 days
  • Allows people to forbear their federally backed mortgage payments for up to 12 months
  • Suspends payments on federally backed student loans until September 30th 
  • Excludes stimulus payments from their income if they file for bankruptcy
  • Extends the maximum repayment period for Chapter 13 bankruptcy plans that have been approved by the Court from five years to seven years

Some creditors have also shown some willingness to be flexible with their customers who have been financially affected by the coronavirus outbreak, such as delaying collection action or modifying loan agreements.

...

Senior Can Use Bankruptcy to Protect Assets from CreditorsDebt has become an increasing problem for senior citizens, who do not have the same income stream to keep up with their payments as they did when they were still working. Several factors are contributing to the rise of senior debt, including:

  • Increasing health care costs;
  • Social security no longer being sufficient income to meet daily, necessary expenses; and
  • Retirement accounts depleted by the recent recession.

Your debts can pile up because of your reduced retirement income and increased need for doctor visits and medical treatments. Rather than depleting your retirement savings to pay off your debts, you should see whether filing for bankruptcy may help. Bankruptcy laws protect many of the assets that senior citizens need. 

Social Security

Your Social Security benefits during a Chapter 7 bankruptcy case are protected from your creditors, as long as you keep that money separate from other funds. Social Security money is vulnerable to a bank levy if it is co-mingled with other money in a bank account. This includes mixing it with money you receive from your retirement accounts. The best way to avoid this is to create a separate bank account for your Social Security income. In Chapter 13 bankruptcy, the Social Security benefits you receive each month are not considered part of your income used to determine your repayment plan.

...
National Association of Consumer Bancruptcy Attorneys State Bar of Texas
Back to Top